Earning Affiliate Revenue Despite Sales-Tax Nexus Laws
California, Illinois, and New York recently began cracking down on mega e-commerce retailers, insisting that they charge customers sales tax whenever their web-based stores pay commissions to affiliate advertisers. In response, Amazon, Overstock, and other e-tailers have elected to shut down their affiliate programs within the affected states. This means that thousands of bloggers and website owners who promote Amazon's and other sellers' products via links can no longer collect money for customer referrals.
Many other states are implementing or considering similar “sales tax nexus” legislation, as it’s known. If you’re a successful affiliate marketer, the moves threaten to put a serious dent in your income. What can you do to recover that cash? Here are a few legally acceptable ways to skirt the rules and keep affiliate revenue streaming in.
- Replace affiliate e-tailer links with those of big-box stores. Fortunately, not all affiliate sales are banned — just those for e-tailers who refuse to collect sales tax. Many big-box stores such as Walmart, Target, Best Buy, and Barnes & Noble already collect sales tax from online customers and their affiliate programs are still alive nationally, so consider swapping your Amazon affiliate links to links to their online stores. Check out nexusaware.com to find merchants that comply with your state’s nexus law.
- Build affiliate relationships with individual merchants. Many individual merchants offer their own affiliate programs: Look at their websites or send them emails to find out whether you can sign up with their programs. In most cases, your cut will be more substantial than what you’d make through Amazon or another large e-commerce site.
- Use a third-party service. You’ll find a few services — most notably, Skimlinks — that offer to automate your affiliate marketing by placing relevant links in your web copy. These companies may take a hefty cut off the top (Skimlinks takes 25 percent), but if you’re based in a state that has banned your most profitable affiliate programs, this may be the only way to keep at least some of your affiliate revenue coming in.
Some affiliate marketers have used other workarounds, such as incorporating a business in a sales tax-free state and having revenue checks sent to a P.O. box there. However, such methods are legally questionable at best and could be considered fraudulent in some circumstances. Talk with a lawyer before considering this type of measure.
Ultimately, if your business relies heavily on income from affiliate programs that are no longer available in your state, it’s probably time to think seriously about how you can diversify your income stream, or even consider selling your business to someone in a (thus far) unaffected state.