Colorado just killed thousands of small businesses whose revenues are based on affiliate sales. They follow on the tail 3 other states with similar laws in place already, and 14 more states nipping at their heels. Here’s why, whether you are an affiliate, or you run an affiliate program, you need to know how this rabid pack of looters can do serious damage to your business, maybe even kill it all together.

Amazon first to fight back . . .

When Colorado passed this new onerous tax law, they forced Amazon’s hand. With one of the world’s largest affiliate programs, Amazon had learned from their experience with New York state when NY passed an Affiliate Nexus Tax. Amazon immediately notified every affiliate in Colorado that they were canceling their affiliate referral program in the state.

Basically they called Colorado’s bluff (CO didn’t think they would ever do what they did) and in the process they took a stand for us all.

You see, New York, along with North Carolina and Rhode Island have enacted laws saying that if a retailer runs an affiliate program with referral payments, that’s enough to trigger tax collection requirements. It has to do with “nexus”, which we’ll get to in a minute.

California, Illinois, Iowa, Maryland, New Mexico, Vermont, and Virginia are among those states with similar measures currently pending; in Virginia, one chamber of the state legislature has approved the bill.

The law is called the Affiliate Nexus Tax, AKA the “Amazon Tax” for Amazon’s ongoing legal battle with New York state on the unconstitutionality of the law. It’s the latest in a series of efforts to increase taxes by eliminating the long-standing “physical presence” standard and replace it with a nebulous, arbitrary standard of “economic presence.” Physical vs. economic presence is HUGE when it comes to nexus.

But the fact that Amazon has deep pockets and is able to fight this is a help to us all — affiliates and business owners with affiliate programs alike.

The deadly danger of the Amazon Tax & Affiliate Nexus

Aside from the unconstitutionality of these laws, the ass-backward logic of raising taxes on the businesses on whom the recovery depends, and the over-reaching of states beyond their borders; the most pressing concern you need to have is the language these new tax bills use.

Common language from the bills includes:

A person with no physical presence in the state is presumed to be engaging in business in the state if:

1. that person enters into an agreement with an in-state resident under which  the resident, for a commission or other consideration, directly or indirectly  refers potential customers, whether by link or an Internet web site, to that  person; and

2. the cumulative gross receipts from sales by that person attributable to  referred customers by all residents with such an agreement are greater than $10,000 during the preceding 12-month period.

(To get the full story on this business-killing new tax scheme, I suggest you read the executive summary report on the Affiliate Nexus Tax / Amazon Tax put together by the TaxFoundation.org.

If you’re an affiliate . . .

As an affiliate, at first glance you may think; “Well $10-grand, that won’t affect me.”

But whoa! Hold on there! That’s EXACTLY what these looters want you to think. Take half-a-minute to think about it and you quickly see that $10,000 equals just a little over $800 per month. That’s $200 per week!

Doesn’t that change your perception a little?
Starting to see how this could impact you now, not just “the big guys”?

On the flip side . . .

I can tell you that as an owner running an affiliate program, we are watching this VERY closely. I’m waiting for a final decision from our Corporate CPA right now on whether we should risk the wrath of these looting states, or play it safe and immediately cancel affiliate programs in states where these laws are passed.

If you are running an affiliate program, you need to be aware of what potentially can come your way with the Amazon Tax. For one, out-of-state businesses are required to collect sales tax based on where the customer is located under the Affiliate Nexus Tax. So each retailer, no matter how large or small, must track 8,000+ sales tax rates and bases. Further, these constantly change and (contrary to common assumptions) are not aligned with even 5-digit zip codes, let alone 9-digit zip codes.

Nexus shmexus — it’s about taking your hard-earned money

States are coming up with their own rules on what creates a “nexus” in their borders. And desperate for money, they are reaching further and further to try to make that definition fit their looting ways. For example, CA is about to start claiming nexus if you hire an independent contractor (and that could be a lawyer, CPA, coach/consultant, virtual assistant, you name it) from CA.

Once you have nexus in a state, you then have to be set up to collect and pay sales tax in that state. And CA is going even further in claiming they have rights to tax your income as well. (But that’s another law and a whole another post on it’s own.)

What you need to do to protect your business

Simple! Pay attention and get involved. Far, FAR too many business owners say “Ah politics, I don’t have time for politics.” Well this is a perfect example of why ignoring what goes on in Washington and in your state capital will reap a whirlwind of looters and moochers banging on your front door.

If you live in one of the four states where an Affiliate Nexus or Amazon Tax has passed already (New York, Colorado, North Carolina and Rhode Island) — contact your state representatives, state senators and governors office. Let your voice be heard.

Ditto if you live in one of the seven other states (California, Illinois, Iowa, Maryland, New Mexico, Vermont, and Virginia) that have legislation pending in in process already.

Then — monitor the news so you can stay on top of your State representatives too. This is where Google Alerts would come in handy. Just go to Google Alerts, sign up for a free account, then enter your alert terms “affiliate nexus tax + (your state)” and “Amazon tax + (your state)“. So your alert search term if you lived in California would look like “Amazon tax + California“, without the quotes. You can choose to be alerted to news immediately or once per day.

History is overflowing with the results of political apathy. the most notable recent lesson being Nazi Germany where Pastor Martin Niemöller famously said:

First they came for the communists, and I did not speak out—because I was not a communist;
Then they came for the trade unionists, and I did not speak out—because I was not a trade unionist;
Then they came for the Jews, and I did not speak out—because I was not a Jew;
Then they came for me—and there was no one left to speak out for me.

Don’t be that person. No one is going to stand up for you. In fact, in this increasingly anti free-market environment that we have to do business in, you’re more likely to have moochers standing up and cheering as the looters take what you’ve worked your butt off for.

What does your entrepreneurial spirit tell you?

Since the founding of our country businesses could always ply their trade across state lines. Today, with the internet, even the smallest businesses can more easily reach across geographical borders to sell their products and services in all fifty states.

But now that business is increasingly being exposed to oppressive tax compliance and liability risks in states where they merely have “customers”, NOT a presence — they will be less likely to expand their reach into those states. And that will further hurt they economy, not help it.

How will the Amazon Tax impact your business?

What are you going to do about to stop the Affiliate Nexus Tax or reverse it?

Shout out your thoughts in a comment below.

And pass the link to this post along. Tweet it, Facebook it, DIGG it! Our voices must be heard if we are going to reverse this tide and preserve our liberty and entrepreneurial freedom.

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UPDATE AFTER POSTING: After speaking with our Corporate CPA she confirmed — “If they catch you, they will tax you. To my knowledge size is irrelevant.” Good luck!

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John Paul Micek is founder of RPM Success Group ® Inc., the leader in software, systems & strategic coaching to double your bottom-line in under 12mos in the New Economy. QuanSite New media marketing software is one of those resources. He is author of the first published book on New Media marketing, the best seller Secrets Of Online Persuasion.

We’re back with the final part of last week’s webinar.  If you’re new to the QuanSite system, be sure to join us this evening at 7 PM ET / 4 PM PT for our new member orientation webinar.  iDeborah will be on hand to give you a technical “how to” overview of the QuanSite system and answer your questions about the basic features within the QuanSite system.  You can register for the webinar by visiting: https://www2.gotomeeting.com/register/664269371

Getting Started With QuanSite Part IV

In Part IV of the webinar, we discuss:

• How to write an engaging blog
• Integrating your QuanSite with 1ShoppingCart or Paypal
• Promoting affiliate products using QuanSite
• How offline business owners, doctors, lawyers and other professionals can use QuanSite
• The QuanSite AMP’d program
• How to choose a good domain name

Timothy Carter was in the hot seat recently at our LIVE Quan$ite Webinar.  Watch, listen and learn as JP Micek critiques Timothy’s Hub Site.  The strategies shared, especially the tips and pointers JP shares on how to maximize your affiliate promotions, apply to all Quan$ite members.

Hot Seat Critique Part I

JP discusses the Google sandbox, page rank, the visual hot spot for your subscription form.

Hot Seat Critique Part II

Strategies for your subscription form, the importance of contact information in your footer and some tips for video on the about page.

Hot Seat Critique Part III

The importance of developing a strong personal brand and affiliate marketing tips