Only time will tell if the move taken by Amazon on June 26 will be seen as a blip or a watershed in the development of the online affiliate industry. That day, Amazon announced to its North Carolina affiliates that it was severing ties as a result of that state's new tax legislation, slated to soon become law.
Affiliates, of course, are independent entrepreneurs who operate websites linked to online merchants; when visitors to the affiliate's site click through to a merchant partner to make a purchase, the affiliate earns a commission. North Carolina's new standard declares that out-of-state marketers within the state's borders are deemed to have a "physical presence," not unlike a sales office or warehouse. As a result, the state believes a nexus is established for tax collection purposes, and the Seattle-based company must therefore collect and forward state sales tax on all purchases made by North Carolina residents.
It's understandable that Amazon would take the position it did, given the circumstances. But as the internet's largest retailer, Amazon's move could have far-reaching consequences. Will other merchants with affiliates in North Carolina follow suit and cut out their local partnerships? Will this development set precedent for Hawaii, New York, and other states that are considering -- or already have enacted -- similar legislation?
It should be noted that Amazon is ready to re-establish its affiliate network in North Carolina, should the situation change. It is also fighting such laws in the courts. In New York, where a similar nexus law is in effect, Amazon is appealing a lawsuit it lost to block the measure's passage. There is reason for hope -- in 1992, the U.S. Supreme Court found in Quill Corporation v. North Dakota that a "physical presence" was not established for Quill, a mail-order marketer, and therefore denied the state's claim for sales tax eligibility.
Whether the courts determine that online affiliates should enjoy the same legal standing is a matter that will take months, if not years, to settle. In the meantime, what should affiliates in North Carolina -- and others throughout the country, for that matter -- do in response?
Reversing nexus laws is likely to occur only through legal opinion. But for affiliates in North Carolina and New York, all is not lost, even at this juncture. It's possible to exclude your state in your online marketing campaigns -- and while it may be difficult finding advertisers who don't do business in your state, they do exist. The internet is the ultimate global connection, and you can still be of value to regional or foreign marketers.
Another option is standard affiliate networks like Epicenter Network, Commission Junction, and Clickbooth, which may be able to structure suitable relationships. There are also individual programs at companies like eBay. Depending on what sort of affiliate program you're running, there should be a network or alternate available for you.
Even if your state has not enacted a nexus law, it's important to lobby your legislator now. Lawmakers need to understand that their drive to level the playing field for local brick-and-mortar retailers (as well as their drive to generate additional state income) threatens the very livelihood of thousands of their constituents.
Finally, regardless of where you live, continue to educate yourself on this and other matters relating to your business' future. Research alternative programs and continue to develop your relationships. Should such laws prevail, they will certainly change the nature of the affiliate industry -- but they don't have to be a death knell. If you anticipate change and prepare your response, your business will always have a better chance of surviving.
Smokey Burns is CEO of Epicenter Network.
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