Smart Passive Income

Last Month’s Earnings

$115,041.12

Currently Reading

Alternatives for Amazon Affiliates: Life After the Tax Bill

Recent Posts

Alternatives for Amazon Affiliates: Life After the Tax Bill

By Pat Flynn on

Alternatives for Amazon Affiliates

Update: in California, the Amazon Affiliate program was reinstated—at least temporarily. Here’s an article explaining more. Even if you are from Cali, though, I believe this post below is still an important read, and justification for the importance of diversity in one’s income source. 

As many of you already know, Jerry Brown, governor of California, signed a bill (ABx1 28) Wednesday evening that, in effect today, July 1st 2011, will require out-of-state online retailers with any kind of “nexus” in the state – a physical or corporate presence (not just a brick-and-mortar retail outlet) to collect sales tax on good sold in California.

California isn’t the first state to impose this tax, as New York, Illinois, Rhode Island, North Carolina, and Colorado already do so. Similar laws are currently proposed in Arizona, Hawaii, Minnesota, Mississippi and Vermont.

The interesting thing is that affiliates for a company in the state trigger this obligation to pay, even if there is no physical presence in the state.

In response, to take a stand on what they feel is an unconstitutional and counterproductive bill and void this sales tax, many large online retailers such as Amazon.com and Overstock.com have terminated their relationship with affiliates in these states.

Amazon Terminates Associates Program in California

The true victims here are the affiliates, whose existing income from these sources has been cutoff literally overnight.

More than 25,000 loyal affiliates, including myself, have been tossed aside. I didn’t rely too heavily on Amazon’s Associate Program for an income, but I do know a number of people who did. Also, it’s not just bloggers and niche site marketers who are affected – there are several companies with dozens of employees who relied on selling products from Amazon.com and other online retailers as an affiliate as well. So, as a result, many people will be losing their jobs too.

Another thought – can you imagine how many websites there are out there that still have affiliate links that are still making money for Amazon – except now they don’t have to pay the affiliate any part of it?

Crazy.

Heated Opinions

Lots of people have some very strong opinions about this matter.

Some say the tax is indeed unlawful, saying affiliates shouldn’t really count as “physical presence” in a state. This is based off of a Supreme Court case in Quill Corp. v. North Dakota in 1992 which ruled in Quill Corp’s favor (Quill Corp. was an out-of-state mail order house), stating that a business had to be physically present in a state before it was required to collect tax.

Others have noticed that Amazon, even though they cut off ties with 25,000+ affiliates in California, might still have to pay sales tax anyways because of subsidiary companies in California including kindle research and development centers, A9.com (a search engine company), and Alexa, which resides in San Francisco.

Did Amazon screw their affiliates for nothing?

Also, proponents of the bill feel it’s only fair to impose this tax, as it puts the internet retailers on level ground with business that are hurting because companies like Amazon can charge significantly less. You do have to step back and look at exactly who was supporting this bill: big-box retailers, most of which are based outside California.

Then there’s the issue of whether or not the tax would actually do anything anyways. Similar legislation in other states has led to little, if any, new tax revenue, and has mostly resulted in job and income losses.

It’s a tough debate because I think California and other states who impose this tax are shooting themselves in the foot while at the same time hurting small business owners, but at the same time should Amazon and other online retailers have the right to avoid sales tax because they are online.

What do you think?

Personally, I’m upset at both the state legislature and Amazon. The state for imposing the tax, and Amazon for retaliating by terminating the loyalty they previously had to affiliates, who really are what made Amazon who they are today.

So What Can You Do If You Were an Affiliate for Amazon?

Disclaimer: This is not legal advice. I am not a lawyer or professional and I will not be held liable for any action or inaction that you take after reading this section. These are just some of the options that I understand are available to you.

Best Buy Affiliate Program

Stay an Affiliate

First and foremost, depending on what niche you’re in and what kinds of products from Amazon you were promoting, you may be able to continue as an affiliate – just not through Amazon.com.

Since Amazon’s goodbye, major retailers like Barnes and Noble, Target, Best Buy, Sears and Wal-Mart (source: sfgate) have extended invitations to each of their affiliate programs.

Below are links to information about each of their affiliate programs:

Most of these big-box affiliate programs run through a third-party affiliate service, such as the Google Affiliate Network, Link Share, and Commission Junction.

Before you’re quick to jump onto these platforms, however, do realize that these big-box companies are the same companies who supported the Amazon Tax bill in the first place…

Become a Reseller

This will not apply to all products, but it’s worth a shot.

Skip Amazon, skip the affiliate program and go directly to the company of the product you were selling. Many of these companies, I’m sure, understand what’s going on and understand too that affiliates have driven a lot of their sales. Depending on your volume, traffic and your negotiation skills, you may be able to cut some kind of deal, or potentially work in some in-house affiliate program.

I don’t know—I’m just trying to think out of the (big) box here.

Setup a Business in Another State

Chris Guthrie (from sessions #10 and #22 of the SPI podcast) also wrote an informative post about what recently happened and offered some actionable options, one of which actually included the idea of simply setting up a business in another state.

Some of the comments that later came in that post advised that unless the business owner were to actually move and conduct business in that new state, it just wouldn’t work, and actually it could be considered tax fraud (again, please seek professional advice when making any decisions for your business). Anything that sounds like a workaround or a loophole doesn’t really sound that safe to me, so I would advise against it.

The only way out would be to move to Washington State, where Amazon.com resides (in Seattle), which would always be safe. If you were making a living from the Amazon.com affiliate program and you had no other options, this may be something actually to consider.

Sell Your Website

Some people have considered selling their websites to those who reside in states where there is not yet any Amazon Tax law. This would make sense to me if I had a site that just had no other way of generating an income.

You might as well earn a buck from it, right?

Note that there is talk that Amazon may sue the state of California (like they did to New York) to try and overturn this statute. Some say that California has no chance, while other say otherwise. Either way, as mentioned in this LA Times article—”It’s going to be years before this whole issue is settled in the courts.”

Great.

Diversify

Try other things and add to your “portfolio,” as I like to say.

And this is really the key lesson here – you should never put all of your eggs into one basket, because that basket, no matter how reliable it has been for you and how many eggs you may have been able to carry, may one day break on you, just like Amazon did for their affiliates.

Conclusion

If you were effected by this tax, in California or any other state, I feel for you. We’re just pawns in this ongoing battle for a bottom line, and it’s very unfortunate.

But, I’ve been there before (when I was laid off), and it turned out to be the best thing that ever happened to me, so as long as you keep your head high, take it one day at a time and stay positive, you’ll get back on your feet and possibly do even bigger and better things in the future.

If you’re in the states, have a happy 4th of July weekend, and cheers to you all!

I’d love to hear what your stance is on this issue. Were you impacted by this legislature, and if so what are you planning to do, if anything?

Let's figure out what works for you + Free Stuff!

3 Reasons to Subscribe to the SPI Email List:

Email address required
No thanks, I'll pass for now :)
  1. 1. Free Stuff

    You'll get instant access to free resources, including my most popular book, eBooks the Smart Way! (Downloaded over 125,000 times!)

  2. 2. Content Tailored to You

    Over time, I'll get to learn more about you and deliver content that actually matters.

  3. 3. No Hype

    Just real content that's meant to make a difference.