|
|
|
|
|
|
by babar
5466 days ago
|
|
|
Can someone explain this for people who are not familiar with the way these affiliate programs work? Were people not paying taxes on affiliate revenue and would now have to start? Or is this a tax on the end customer buying from Amazon (which would be forced to collect CA sales tax)? How do either of these impact startups in CA? Does this impact businesses registered in DE that have an office in CA? |
|
|
You have a startup and part of the way you monetize is by having affiliate links on your site or in your product.
Affiliate links are given to you when you join an affiliate program. The merchant you work with agrees to pay you a percentage of every sale or a fee for some action. When someone clicks on one of the links on your site and buys something, you get paid a commission.
The US constitution commerce clause basically says that the merchant is not obligated to collect sales tax if they do not have a physical presence in the state (otherwise known as a nexus). That means that if you live in Utah and sell to a customer in California, and you don't have any physical offices or presence in California, you don't have to collect sales tax.
The responsibility of reporting sales tax for online transactions falls to the citizen of California who is obligated to report it on their tax return. They seldom do.
The law about to be passed in California would designate any affiliates as a nexus for out-of-state retailers, requiring sales tax to be collected. This violates the commerce clause as it is not specifically included (in short violates the spirit of the law and is not defined clearly in the letter of the law).
This impacts startups and businesses in California that make revenue from any of these affiliate programs. Two high profile startups I know of are TheFind.com and Shopobot. A big affiliate (I went with one of the founders to lobby to help kill these bills) is Ebates.com. Each of these has offices in California and would be hurt by this bill. Apparently Shopobot is headed out of state (someone from there posted today about it), as is Ebates (to my knowledge). There are about 25,000 businesses that are going to be really harmed by this legislation and they really have no choice but to leave.
I believe this bill will qualify even if your company is registered in Delaware but you have an office in California. I'm still getting legal advice on this, but it doesn't look good.
The general result of bills like these is that the affiliates or businesses leave the state to protect their income and the state loses out on the tax revenue. Net effect is typically a dive in the tens to hundres of millions in tax revenue. Illinois is a great example where several companies with hundreds of employees left the state.
Hope this helps you get a clearer idea :)