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

• NYAffiliateVoice (Melanie Seery)
• ShareASale Blog (Brian Littleton)
• California AB178 for Dummies Podcast (Missy Ward)
• Affiliate Tax Laws Forum (ABestWeb)

Follow Along

• Twitter Search for #advertisingtax
• Twitter Search for #affiliatetax

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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.

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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.

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A retreat in this direction, particularly in this economic climate, can diminish marketing’s perceived value and programs suffer. The consequences of this begin with decreasing allocation of resources (staff, budget, technological support). The Marketing team is charged with accomplishing more with less, lending to more time spent being reactionary and too tactical. It’s a seemingly inescapable loop that is doomed to repeat itself unless goals, objectives, roles, and responsibilities are clearly defined.

Much of the discourse is caused by a lack of mutually understood vernacular and misaligned expectations in relation to the representation of metrics. We speak about interactive as being accountable and measurable. CFOs and other finance types take an interest but rather than digest the numbers as marketing insights; they take them literally as financial reporting. CMOs, V.P.’s of Marketing who need the buy-in from financial types to get their budgets get excited thinking they are satisfying their needs for accountability. However, metrics tied to ROI such as view-throughs and other interactive marketing measures, accepted and understood by interactive marketers create dissension and divide between the ranks.

The situation is often unnecessarily adversarial from the start. Similar to many struggling relationships, the majority of discord is due to an inability to effectively communicate. While sharing the same goals, neither party fully understands what the objectives are and how to best measure the results. The solution sounds easy; the steps necessary to get there are not. There is a matter of education and patience that is vital to closing the gap. Quantifying and measuring the value of interactive programs and investments should help get everyone on the same page. At the core of the issue is how we view, interpret, communicate and react to data.

An inability to establish goals for metrics and monitor key performance indicators can cause paralysis by analysis; too much data and no focus. We have a plethora of data at our disposal, but not too many have figured out what, exactly, to do with it. Everyone wants to know how to integrate their data and analyze the business across channels. Not many have the solution for aggregating, analyzing, and digesting combined online and offline data in a timely and actionable manner. This is an industry-wide challenge and I’m assuming whoever can establish predictive models, by retail category, will become a very rich person.

Until you are able to identify true incremental sales through online media, social networking, and mobile, increased focus will remain on direct sales drivers like paid search and email. The perception exists that campaign data does not evenly measure and compare performance across all digital channels. It’s not that online marketing’s reported impact is completely discounted, but due to difficulties in comparing metrics across channels, the decision makers will remain skeptical in varying degrees.

Simply stated, if the sales and cost don’t add up to an acceptable return on investment, you are not getting the budget you requested. Learn to speak the language necessary to influence key stakeholders within the organization and motivate decision makers. Recommendations, ideas, etc. do not resonate if they are without goals, objectives, strategy and a plan underpinned with solid execution. The better able you are to tie an investment to incremental sales at or below the desired ROI; the more successful you will be at gaining necessary traction within the company. The better you can communicate how certain programs contribute and support overall sales and other measurable value to the business objective the more you will be able to drive value that will contribute over time. We have all become inpatient because we can measure a return from a sale in a click; but “Rome wasn’t built in a day”, “Patience is a virtue” and other old clichés apply in the new measurable world of digital marketing.

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Most retail executives know that shoppers online and off use multiple pathways to find their desired products or services and that this multi-channel consumer is loyal and spends more, more frequently. So why has multi-channel integration remained elusive for most retailers? Is it really that difficult to plan the groundwork for multi-channel implementation? Organizational dynamics are usually the first barrier to success. The lack of a shared stake in the success of the business leads to separate goals for each channel that are tied directly to an immediate ROI. Growth often takes a backseat because it is expensive with a delayed return. In fact, it is not uncommon to see the portion of the marketing budget allocated for growth dismissed and reallocated to fund existing channels, erroneously expecting the same rate of return. So what exactly is breaking the ties that bind?

• The C-level is uncomfortable with the investment because they are overlooking the intangible factors that growth in a new channel presents.
• They want cross-channel data analysis; without it, they are less likely to spend more now for the sake of future growth.
• They want the ability to interact with data supporting their investment, especially in the online space, before they can take a more customer-centric view of profit and loss.
• A disconnect exists between management and staff on how goals should be set and the allocation of budgets/ resources.

Retailers are also plagued by increasing demands on personnel coupled with scarce staffing and technology resources. Senior management may recognize the importance of a successful ecommerce business, but may not understand how that channel compares to more traditional sales channels. Consequently…

• Those executing the day-to-day operations of the business are placed under heavy scrutiny and are often pressured to squeeze as much out of marketing budgets as possible.
• Their duties and responsibilities become reactive and the goal of growth through finding the multi-channel customers and effectively communicating with them is lost.

More often than not, mid-managers recognize the need for a seismic shift, but lack the senior-level management support to be maximally effective. Establishing open communication channels throughout the organization will add the necessary voices to the decision-making process. Some other things to consider:

• Leadership: Essential in helping set internal priorities throughout the company
• Proactive Communication: Mid-management and staff need to push, upstream, productive feedback and potential scenarios with expected outcomes, when faced with challenges.
• Collaboration: Senior management must work with those managing the day-to-day business to create a strategic plan for multi-channel implementation and sustained growth.
• Personnel Management: Clearly defined roles and expectations matching understood goals are a vital foundation for success.

The more traditional methods of marketing need to be eschewed in this dynamic commerce landscape. It’s all about instant gratification; the customer wants what they are looking for now.

• Consumers no longer lack shopping options and if you do not engage them as they move through each channel, you risk losing them.
• The paradigm has shifted; consumers are engaging in longer-term relationships and maintaining greater control over their online experiences.
• Retailers need to embrace technology, and the necessary costs, not only to integrate data and make informed decisions, but to also reach their customers.

People are consuming media at an ever-increasing volume and frequency and they expect you to find them, or make it very easy for them to find you, and satisfy their needs. If you create an integrated experience, your customer seamlessly moves through each channel without any barriers to arriving at the ultimate goal; the sale. Embracing this new dynamic requires an unprecedented level of leadership and collaboration among varying areas of operation, across the enterprise, from merchandising to marketing, IT, sales, finance and so forth. Clearly this is not something that can evolve overnight, but it starts with a focused commitment from senior management combined with a communicated, shared vision and effective planning across the organization.

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• What are the steps necessary to achieve multi-channel integration?
• What is unique to each channel?
• How can you leverage that uniqueness to enhance user experience and drive your objectives?
• How can you allow the customer to shop without any barriers to each channel?
• How does are Multi-channel marketing programs impact other areas of operation such as merchandising and finance?
• How do your programs influence and impact each other?

Remain Consistent but Flexible. Consistency has become a mantra when discussing multi-channel marketing. Success however will not come from a literal interpretation to remain consistent. Consistency in messaging, customer interaction and branding efforts should be complementary but do not necessarily need to mimic each other in their execution. With each different medium, different needs & the subsequent mechanism to deliver your message can & will exist. The personas you build for your online shoppers will not necessarily jive with their offline counterparts. The internet allows us the ability to create more & better-defined customer segments.

Make Data Matter. What is going to help achieve your goals is taking an integrated approach to analyzing your data. Don’t leave your data in silos; blend the data across channels, but do not drown in it. Identifying and prioritizing what is important will usually have a direct relation with something actionable. Identify key performance indicators whose analysis will help you steer your business in the right direction. Do you have ready access to data showing customers who were sent a catalog, served a creative ad unit through one of your network buys, & whose ultimate conversion came directly upstream from Google? Do you know how your media programs drive your prospects to customers? Data does matter but we also have to recognize that data metrics are not in an ideal industry state for absolute conclusions. They do however provide enough insight for directional and actionable insight.

Advance New Opportunities. Online marketing and advertising offers multi-channel retailers unprecedented opportunities to efficiently test new strategies and tactics to gain valuable insight to their customers and drive maximum business performance. While every online channel is not a direct to sales path each channel has unique strengths and capabilities to drive prospects to purchase.

Embrace the ability of each channel to serve unique consumer needs and business outcomes while simultaneously supporting and advancing each other should be the goal. The accelerated advance of ecommerce can be daunting but a measured, strategic approach; open communications and shared knowledge are significant components to an successful multi-channel retail strategy.

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