Retailer Nexus & The Advertising Tax

Published by
brian
March 28, 2009 in Advertising, Advertising Tax, Affiliate Tax and Ecommerce. 5 Comments

There is an issue that is developing almost daily & has passed a level where online retailers & the publishers within their affiliate marketing programs can no longer ignore or act as innocent bystanders.  In 2008, the state of New York passed a bill that changes an online retailer’s taxable nexus to include states in which affiliates drive online sales.

Before moving on, let’s define a few things in case this is unfamiliar or unclear.  Full details (specific to CA) found here.

  • Nexus is the level of connection with a state necessary under the U.S. Commerce Clause to permit the state to impose a tax or a sales tax collection duty on out-of-state businesses doing business in the state.
  • Sales tax is imposed on a state’s retailers based on gross receipts from the sales of tangible goods.
  • Use tax is imposed on a state’s consumers who purchase goods from out-of-state retailers.
  • If a sales tax is not collected, consumers are supposed to submit it as a user tax.  But, honestly, who do you know that does that?

If you were a merchant with retail trade presence in NY, this had zero effect on you.  Online retailers without a trade presence in NY were faced with the choice of now taxing customers or removing affiliates who reside in NY from their program.  The negative impact is obvious; any affiliate registered in NY lost a revenue stream if they were dropped from the merchant’s program.  That merchant also potentially lost a revenue-driving affiliate or put another hurdle into the customer’s purchase decision process (charging sales tax).

Similar to the legislature passed in New York, several states (CA, CT, MN, HI, IL, TN, & NC) are now considering enacting their own that will affect retailers’ taxable nexus. Digging a little deeper, under these bills, a retailer making taxable sales is presumed to be soliciting business through an independent contractor (affiliates) if that retailer enters into an agreement with a resident of a state under which the resident, for a commission or other consideration, refers potential customers. In many cases, this provision only applies if the cumulative gross receipts from sales by an affiliate exceed a certain amount (I’ve seen ranges of $2k to $10k).

The problem with this is that affiliates are not exactly independent contractors.  In my opinion, the fact that they are called affiliates, in this case, is misleading.  It does not mean the same in the online marketing world as it does elsewhere.  While there are many affiliates with fairly large businesses, a good amount of affiliates work from home & are the independent/entrepreneurial people we should be rewarding, not penalizing.

As a retailer, the short-term & easy solution would be to remove the affiliates if the legislature is passed, state-by-state.  However, there is a good possibility this will gain momentum throughout the rest of the states.  If it becomes nationwide & your initial action is to kick out affiliates, you will have a difficult time getting them back.  There is also speculation that the legal language could be written loose enough to include the likes of search engines & interactive ad agencies.

I am sure you are quickly realizing how this makes zero sense.  In fact, precedence was set for this 20 years ago.

There is growing support from the likes of Google, LinkShare, Commission Junction, & many affiliates in general to get in touch with their local representatives & media outlets to spread the word, educate lawmakers & help defeat these bills in each state.  It seems as if lawmakers do not truly understand the impact this would have & are ignoring what has taken place in New York (many retailers completely dropping affiliates in that state).  Those supporting this legislation are simply seeing a pool of money that is not being taxed.  They do not understand that this is going to put more people in the unemployment line (less taxable income) & decrease sales for an online retailer in that state.

Here is a status by state; I probably will not do the best job at keeping this updated, though I will be actively aware of the issues.  Much of the information I have gleaned here has come from the resources listed at the bottom of this post.  A lot of the important due diligence & legwork has been done by Melanie Seery, Brian Littleton, & Missy Ward…at least their sites have been the resource for the majority of my content.

  • Connecticut: SB 806.  The  Joint Finance Committee vote was held on 3.26 & the bill was  approved.  The joint bill is now filed with the Legislative Commissioners’ Office. After fiscal analysis it will go to the Houses for vote & then on to the Governor.
  • California: AB178.  The bill was officially referred to the Committee on Revenue & Tax. The committee has set a hearing date for April 13.
  • Minnesota: SF 282 was supposed to be reviewed by MN’s Senate on 3.24, but was delayed. No further notification has been given on when it will be reviewed.
  • Hawaii: HB 1405.  The process will probably take another couple of weeks. I believe that the next steps are the 2nd & 3rd reading followed by the House vote, then on to the Governor.
  • Tennessee: SB 1741 & HB 1947.  Has been assigned to the House & Senate’s sub-committees.
  • North Carolina: HB 558 & SB S487.  Both Houses sent the bills to their Finance Committees earlier this month.
  • Illinois: Have heard this may be underway, but do not have any details yet.

I encourage you to not only read what’s been written, but also dive into the bills, by state.  It is not enough that we merely contact local representatives & send an email or letter.  If you want to persuade lawmakers, you are going to have to educate them.

What You Can Do

  • Educate yourself & others.
  • Spread the word.
  • Keep on top of the issues.
  • Speak directly with those in the online retail & affiliate marketing industries who are close to this.
  • Contact your local representatives.
  • Use your network to find out what media contacts you have.  If you have none, make them.
  • As an affiliate; find out what retailers are in these states as there will be a material impact on your business.
  • As an online retailer; don’t make any rash decisions & think long-term.  Ensure your online marketing team, agency, etc. & all key decision makers are tuned in & are looking at this strategically.  Openly communicate & collaborate with your affiliates.

Resources

Follow Along

5 Things I’m Sure Your Clients are Thinking or Doing

Published by
brian
February 6, 2009 in Ecommerce and Interactive Marketing. 0 Comments

While my main focus here is online retailers, I would venture to guess there are similarities for all online advertisers.  As always, there are exceptions to the rule, but these are not the only hot topics.  Please feel free to add your own (whether completely serious, in jest, or somewhere in between).

  1. Shifting marketing dollars to performance-based channels – email, paid search, affiliates, & search engine optimization (SEO).  The latter wouldn’t require much of an incremental investment if people simply adhered to the principles of good copywriting & building structurally sound web sites.  SEO is not that simple, but those 2 sure cover a lot.
  2. Realizing the rise in average cost-per-click on search engines was up higher than it should have been.
  3. Considering investing in things that will improve conversion, user experience, & customer service.
  4. Determining how to best reach customers on a more micro level (customized & more personal interactions)
  5. Asking you to do more with less.

If none of this is going on, I would say you are either extremely lucky or in big trouble.  The former because you (& your client) are then, somehow, isolated from the current economic factors.  The latter because your client is considering bringing things in-house or are talking to other, cheaper, agencies.  Or it could be because you simply suck…I know a few agencies that fit that bill.

As a Friday bonus, I’ve included a translation of the above for the cynics…

  1. The byproduct of performing your necessary due diligence.
  2. Digging a bit deeper to understand the cause of rising costs.
  3. What you should’ve been doing all along…how dare you treat your existing customers like commodities.
  4. Building & maintaining loyalty in an increasingly competitive space.
  5. What most like to call Doing Your Job.

Bad Email Marketing

Published by
brian
January 17, 2009 in Ecommerce, Interactive Marketing and Retail. 5 Comments

I, like most of you, did my fair share of online shopping this holiday season.  For me, professionally, these experiences are gold.   I get to see a wide variety of online retail marketing plans in action.  It also allows me to experience things from the customer’s perspective & see how my clients measure up. This season was pretty easy.  I have one gripe though &, in my opinion, it could have been avoided if basic marketing tactics were utilized.

I have been buying my mom these hand-carved wooden Santas over the years (the past couple I actually haven’t because I forgot their name & couldn’t find them…more on that later) from Great American Collectibles.  This is the kind of kitschy stuff you see at the mall in places like Things Remembered.  Only Great American pays fine attention to detail & their variety of Santas is the best I’ve found.  It’s the one gift I know I will nail each time.  Buying is simple (as all online shopping should be) – browse through the collections by year, pick what you want, add it to your cart, & check out.  I received my confirmation email & then nothing else for a couple weeks.  After I contacted them via email, I received the following…

You most certainly cannot control spam filters.  However, you can ask recipients (in the order confirmation email) to add your email address to their trusted sender list or Address Book.  It’s also possible to monitor email blacklists & your email server &/or web site domain are not on them.  Perhaps you should contact someone (like me) to help you with growing your business on the intertubes.  You’re impossible to find in search (unless you search exactly for Great American Collectibles) & don’t seem to get the basics of online customer service.

There is nothing more frustrating than a failure to execute the fundamentals.  This becomes even more important in the face of difficult financial times (R.I.P. Circuit City).  You have to go out of your way to acquire new customers & retain existing.  Now is not the time to blame things you think are out of your control.

Seven Things About Brian Branca

Published by
brian
December 16, 2008 in Misc. and Social Media. 10 Comments

Meme.  Such a funny word (rhymes with seem).  Do you know what it is?  Wikipedia defines meme as a unit or element of cultural ideas, symbols or practices that transmit from one mind to another through speech, gestures, rituals, or other imitable phenomenon. The term is derived from the Greek word mimema for mimic.  Memes are cultural analogues to genes in that they self-replicate and are subject to selective pressures.

Yesterday I was tagged by Indra Gardiner on a meme making its way through the interwebs that asks you to post seven things about yourself that others might not know.  So, without further ado, here are mine.

  1. I am either graciously patient or horrendously impatient.  There is no in-between.
  2. Back when Return of the Jedi was HUGE, EVERYONE wore something related to Star Wars for Halloween.  Girls were mostly Princess Leia & boys were either Luke Skywalker or Han Solo.  I was Admiral FREAKING Ackbar.  Worst. Costume. Ever.  I guess I’m just glad I wasn’t an Ewok. This image should be centered…stupid WordPress.

  3. If I had to do the whole education & career path thing over again, I would have gotten into astrophysics.  When I was a kid, I wanted to be an astronomer & aced physics in high school.  Nowadays I spend a lot of time watching things like The Universe.  If you want to know what happened, refer to number one; the thought of all that schooling kinda freaked me out back in the day.
  4. Sometimes I wish I just did things rather than over-thinking things.
  5. I want to learn to play the piano…like Elton John, or Alicia Keys, or Mike Oldfield…honestly, I’d take Axl Rose or Chris Martin’s skills at this point.
  6. There are times when I look up to my two brothers (who are six & eight years younger than me).
  7. I was probably the only kid who ever wanted braces.  Yeah, I got them in my late twenties & provided a ton of entertainment for friends throughout the two years they were glued to my teeth.

Part of this meme is to tag seven other people; here is my list of people’s memes I’d like to read.  I’m tagging however many I choose & you probably can, too.  Who said seven was the key number here anyway?

Here are the rules…

  • Link your original tagger(s) and list these rules in your post.
  • Share seven facts about yourself in the post.
  • Tag seven people at the end of your post by leaving their names and the links to their blogs.
  • Let them know they’ve been tagged.

Now That You’ve Had Enough Turkey

Published by
brian
December 1, 2008 in Link Dump. 2 Comments

Chew on a little bit of this…

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