Last week, California Governor Jerry Brown signed a new California budget bill which included several forms of an Internet Sales Tax, including a click-through affiliate tax.
That same day, June 29, 2011, Amazon, Overstock, Zappos and other major online retailers began sending out termination notices to some 25,000 California-based affiliates, notifying them that their relationship will terminate on the date the budget becomes law (which was effective immediately).
In 1992, the U.S. Supreme Court ruled in Quill Corporation v. North Dakota that states can compel tax collection from companies with a physical presence in their state. This connection is termed a nexus.
Under this bill, an Internet retailer with no physical presence in California would be considered to have established nexus if they operated an affiliate marketing program that allowed or has California residents participating.
These affiliate programs allow individuals and businesses to place links to retailer's websites. When a shopper clicks through one of these affiliate website links and purchases a product, the retailer provides a commission to the affiliate (usually a percentage of the sale).
California isn't the only state in the US to pass such an affiliate nexus law. Other states include North Carolina, New York, Illinois and more. You can find more information and updates of affiliate marketing laws in each state by visiting the Performance Marketing Association.
What does this mean for your pet business?
If you have a pet business (or any business) that provides affiliate marketing and you have affiliates in California, we highly recommend you consult a tax attorney. There are limits on the amounts of sales and other guidelines that may or may require you to comply in collecting sales tax from sales through affiliate and click-through programs advertised on sites based in California.
If you are a publisher or affiliate and live in California (or other states), please visit the Performance Marketing Association website and keep up-to-date on the status of affiliate nexus laws in your state.