Alternatives for Amazon Affiliates – Life After the Tax Bill

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?

  • Stephanie

    Luckily, while one of my personal pet site made the most money from Amazon, I still have other income streams (adsense, adbrite, job…) to take it’s place while I shop for new affiliates.

    However, I am sad because a lot of my links to products I recommended were pointing to Amazon. However, I’ll just take it as my way of helping someone out and not think about the commission I could have earned.

    • http://www.onethousandamonth.com/ Graham Lutz

      Stephanie – You could always open an LLC in another state and get a new affiliate account through that business.

      Or you could sell the site to someone in another state.

      • Stephanie

        I have considered opening an LLC in another state. In fact, as soon as I got the email about the affiliate termination, I had already looked into it.

        However, selling it is somewhat out of the question. It has too much of a personal touch to it that if it were owned by anyone else, it’d be awkward.

    • http://weddingbuggy.net mark

      Stephanie,

      You may want to take a look at this affiliate from New York. While the blog post is old, the information is not. http://nyaffiliatetips.com/new-york-state-tax-law-affiliate-marketing-work-around/

  • http://www.happyheartandmind.com Zengirl

    Pat,

    I am also in California, I have almost free blog (for now) and had only handful of amazon books links, which made a few cents. I think you should add about creating your own product as an option as well.

    Barns and noble is great replacement for those who link to books or movies. I have to check out other options soon. Thanks for well thought out post on the subject.

    Preeti

  • http://stressfreedegree.com Jerry

    Nice coverage Pat. You could always rent affiliate link placements to friends in other states ;)

  • Paul

    California is ridiculous! Instead of trying to encourage any sort of entrepreneurship, innovation, or efficiency through business, they instead squash it by trying to squeeze every last cent they can through taxes.

    Talk about your all time backfire!

    Over night, I lose half my online income. Which means the smartest thing I can do is move to Nevada as quickly as possible. Now, not only am I not going to be spending my money in this state, and consequently not paying sales tax, I’m not going to be paying income tax to this state as well, because I will no longer be living here!

    An extra $200 million in taxes per year my ass! Did they not see what happened in the previous 5 states that tried to pass this idiocy?

    Oh well, I guess California will always be a nice place to visit.

    • http://www.onethousandamonth.com/ Graham Lutz

      Word

    • http://startteachingguitar.com Donnie

      That’s it, man…vote with your feet!

    • http://weddingbuggy.net mark

      Paul, California will not be getting any money. However, the lefty loonies feel they have done a good service because they followed through with their socialist ideologies. Kudos to Jerry Brown et.al who have not changed their unethical and unconstitutional practices. Let’s leave these idiots in the dust. We are moving out of here too!

    • http://www.layoutaday.com Lain Ehmann

      Hey Paul, what was the result in the other states? Any links to recap articles? I’d be very interested… thanks.

  • http://optima-lifestyle.com Cristina

    It’s very sad to see how politicians don’t care about the workers in their states.
    All the best to the affiliates who have lost their income because of this.
    But, guys, there are many other options. Never stop trying, never stop pushing!

    Cristina

  • KimP

    Wow, I’m not in California, but this is unfortunate for those affiliates who heavily depending on Amazaon’s program for their income.

  • http://www.walleblog.com Jeremy Waller

    I know several people who have set up a business in another state. I’m not an attorney, accountant or anything of that nature, but some who are seem to think that it is perfectly legal to get around the this issue by forming a business in another state.

    By the way, it’s not like the states don’t have a law to collect taxes on goods purchased online. It’s called a use tax. The problem is, most people under report (or don’t report) the value of goods they have purchased from out of state.

    • http://startteachingguitar.com Donnie

      I’m in Colorado, which went through the same junk last year. I’ve been toying with the idea of setting up the LLC for my online business in Wyoming, not only to get around this particular problem with Amazon, but also because of the business-friendly laws and other tax benefits. But it’s a pain if you’re just starting out, because you have to pay extra for a resident agent service, and it’s more complicated than forming an entity in my own state. I’m still trying to decide if it’s better for me to just switch to Barnes & Noble’s affiliate program or do the Wyoming LLC.

      • http://www.getwebbedhosting.net Leon Aldrich

        Pat should do a follow up article of Best States & Resources For Forming LLC.

        This imposed tax hurts individuals, but those forming “paper” companies (i.e. LLC’s get the the corporate work around).

  • Bobby Voicu

    Hi, Pat!

    I think one of the best solutions would be a JV with someone from outside California (a friend, if possible), where you put their Amazon links on your site and they would get sth like 20%. you would not lose all your income and they would be earning some money for doing virtually nothing :)

  • http://www.youngprepro.com/welcome Onibalusi Bamidele

    I feel sorry for those who are affected by this and the takeaway is never to rely on one affiliate program.

    My niche site is climbing up significantly for its keyword of choice and I’m thinking of ways to monetize it now – what I have decided by reading this article is that I will monetize it using at least 3 different and unique income streams, without the site being heavily dependent on a particular income source.

    • http://www.onethousandamonth.com/ Graham Lutz

      Good idea, Onibalusi – Just like amazon shut down their california affiliate, it’s just as easy to get locked out of adsense or any other monetization program whatever reason they see fit – even when you feel like you’ve done nothing wrong.

  • http://www.taskrevolution.com Gary Varner

    The big question that pops in my mind is how long will it be before the rest (or most) of the U.S. states signed similar bills into law? Those not in the 11 states mentioned may be breathing a sigh of relief, but the reality is their time is marked.

    I’m also concerned this may be a net loss in general terms for affiliate marketing from the fact that Amazon has such a trusted presence, and I have to believe some affiliate links are successful in general because it lands people on the Amazon site. Swap that to Best Buy, Target, etc., I wonder if the same buyers will go through with the purchase, or simply jump over to Amazon instead.

    • http://www.makemoneyontheinternet.com Chris Guthrie

      Hey Gary,

      Good question and I think that this very well could become a federal issue that the goverment has to deal with or they’ll just continue to allow individual states to decide (which is fine with me). Some states have proven that they are well aware of these laws being passed and are making moves to get businesses to move into the neighboring states.

      CouponCabin.com moved out of Illinois earlier this year when they passed a similar bill and so that state not only lost the tax revenue they also lost the income from the jobs too.

  • Chip

    I’m surprised that Amazon wouldn’t follow the Apple model and represent all of their loyal affiliate customers by representing them in a lawsuit in California (much like Apple did recently when they represented their small developers against a patent trolling firm). This would have bought a lot of goodwill towards their customers, and at a minimum they could have withheld taxes for their clients until this was fully resolved in courts. Fight with your customers, don’t punish them…

    • Katherine

      Chip, Amazon is making their stand in New York. Currently, the tax money they collect there is put into a trust while they duke this out with NY through the courts and most likely up to the Supreme Court. Ultimately, that will determine what happens in the rest of the country, but it’s still a few years away. In the meantime, states are going to make their tax grab while they can.

      An interest side note is South Carolina who just make a deal with Amazon to waive the sales tax issue for a few years. In return, Amazon has to build a distribution center and guarantee 2,000 jobs. Texas is talking about a similar plan. Too bad the California legislators aren’t that forward thinking.

      And also, I wanted to throw out another online retailer to check out. Buy.com. It’s a California company that already collects taxes.

  • http://www.r32media.com Eric Timmer

    This really sucks! In Hawaii we dealt with this a while back, and now they are trying again. I have a bad feeling about this and I think more states have dollar sign$ in their eyes. Never put all your eggs in one basket, is what they always say.

    Diversify, diversify, diversify.

  • http://www.r32media.com Eric Timmer

    Oh sorry, one more thing. Is California trying to drive more people out of the state? Doesn’t make sense at all!??

    • http://www.onethousandamonth.com/ Graham Lutz

      It seems like it, doesn’t it? How could they possibly think this was a good idea?

    • Alan

      Yah the majority of the party in CA believes they can solve the crises through more taxes not through job creation where the emphasis should be it will only get worse. This is what CA wanted when they voted the politician do not know anything about business people don’t get this the people had a great choice in Nov which was the CEO of ebay which knows about business but they did not vote for her now they will have to live with the consequences.

      • http://www.onethousandamonth.com/ Graham Lutz

        It just goes to show that career politicians just can’t possibly make decisions that are best for business and best for the state.

        They are so removed from reality that they actually think this kind of a law will INCREASE revenue. It’s almost unbelievable…

  • Mindy Iannelli

    This really is a terrible outcome. I feel for those of you who have been making a good penny on the affiliate program. Truthfully, I never understood this whole internet tax thing. Believe me, I’ve truly enjoyed the financial savings of not paying tax on my internet purchases, but this has never made sense to me. States need the sales tax – whether they spend it wisely or not is another story – and will (and are) getting the money from us in other ways if they don’t get it from sales. In the past, if I went to the local store and bought a book for $20, I paid $1.40 in sales tax. Now I can buy the same book, no shipping, no sales tax for $14. Even if I paid the sales tax on $14 I would still be saving money and my state would get the tax money from that – instead of raising my taxes in other ways. If all internet purchases were taxed (which I believe should be paid to the buyer’s state) – then this wouldn’t even be an issue. Good luck to all of you who are losing this affiliation.

    • http://www.getwebbedhosting.net Leon Aldrich

      The problem with collecting & paying out those tax dollars collected would be a nightmare. Its not as simple as having the tax rates for all the states. Now you are dealing with tax rates for counties and cities as well. Which is where the nightmare begins.

    • http://weddingbuggy.net mark

      Mindy, states do not need sales tax. It’s an opiate that just stimulates the need to spend more money. Income tax, gasoline tax, distribution tax, real estate tax, …get my point. We have way to many taxes. Don’t make excuses that the states need sales tax. Even if you double the tax revenues, these idiots would still spend the money.

      • goldenpig

        Very well said mark. Like most parasites politicians don’t realize they are killing the host. Government at all levels need to learn to budget. My family budgets, we don’t just endlessly go on spending…

  • http://teeballbaseballblog.com Tom

    Really a shame. But you look at how states are in debt so it was a matter of time. I keep an eye out for states where I have businesses, rentals and my blog affiliates and so far, no tax laws passed.

  • http://startteachingguitar.com Donnie

    I think it’s only a matter of time before this becomes universal, across the US. I think something like 45 of the 50 states have a large budget deficit. The consequences of taxing like this make it a stupid idea in the long-term, but politicians have never been known to think long-term…they mostly care about today (and getting re-elected). It might take several more years to happen, but I’ll bet as the economic situation continues to decline for the states, we will see taxes added to things we never imagined before, and they will get passed due to the looming fiscal crises in almost every state in America. Watch what’s happening in Greece, for example…and get ready.

  • http://www.growthable.com/ Andrew Olson

    One thing that might be worthwhile is contacting your local legislator. Sure, it’s retrospective, but you can at least show your disapproval. After all, they work your you.

    You can lookup their voting record on the SacBee website: http://www.sacbee.com/votingrecord/ and search for bill “AB28″. If you see a AYE next to the first bill – contact them and let them know what a terrible mistake this bill was. Luckily, mine voted NOE :)

  • http://7pillarsofsellingonline.com/ Thomas John

    Hi Pat,

    I agree. Diversification is the key. The more a business relies on an outside source or third party for all it’s income, the more risk there is.

    I love the tip about selling your niche sites if you are affected by the law change.

    I know Flippa is a marketplace where you can sell websites. It’d be interesting to see what other suggestions you have for places or ways where websites can be sold.

  • TrafficColeman

    Pat..this just shows the world we are living in bro..because I remember 8 years ago the government gave a 2 cents about what money people where making online..but now they want a piece of that pie..just a shame.

    “Black Seo Guy “Signing Off”

    • http://weddingbuggy.net mark

      You are right on! Now that online is paramount to any business, they want the lions share.

  • Alan

    The signs of socialism are here this is what happens when you have a government that is against small business. The people voted for it and as Obama say their is consequences to the way you vote people should not be surprised the internet community was a big part of the elected officials that are in D.C. now. Take care and Wake up America Capitalism may be dying.

    • http://financialplanningapprentice.com Robinson

      The online entrepreneurs should take note. The internet is a classic example, and one of the last examples, of a free market. Now the government is showly working on chipping away at it.

  • http://www.egear.be eGear

    Wow. And I thought USA was a tax paradise compared to Europe… apparently not.

  • http://www.peprepme.com Greg

    My website was cutoff from Amazon Affiliates. I’m with Pat, I’m pretty disappointed with the state legislature and Amazon.

    First, when this bill came up for discussion, everyone knew exactly what happened in the other states-affiliates got burned and either lost their income or moved to another state. Amazon was upfront when this bill came up-they would do the same thing and cancel the accounts. Sacramento when with the bill anyway….

    Amazon however seems to me like a spoiled kid stamping their feet in the corner until they get things their way. They said it would be too large of a job to collect sales tax from the individual counties/cities. Give me a break. One intern could handle this job of setting up the individual tax rates. Automate a couple hundred tax zones for shipping and then mail out a check every year.

    This is truly a lose-lose-lose situation. The state, Amazon, and the affiliates all lose.

    • http://www.onethousandamonth.com/ Graham Lutz

      Amazon is not to blame here.

      They make decision based on their fiduciary responsibility to their share holders. If they are deciding not to do business with affiliates in CA, it’s because it would cost them more money then they would bring in by continuing with the affiliates.

      The last thing we need are business dropping their pants every time the democrats try to pull shit like this.

      • http://www.peprepme.com Greg

        Sure, they have a responsibility to their shareholders. Is it a responsible decision to cutoff a major group of people driving traffic and sales to their site? This is an interesting question especially when you consider that this same group of people will likely be driving traffic to Amazon’s competitors.

        The added expense of accounting for sales tax collection would be outweighed by the additional revenue. Amazon’s decision to cut off the affiliates was just a political decision.

        I’m not defending this tax, but I am saying that the politicians aren’t the only ones to blame for this mess.

        • http://www.onethousandamonth.com/ Graham Lutz

          Cool, how did you get access to amazons financial documents and analysis?

          I guess you an Bezos are great friends and have political discussions at brunch?

        • http://www.peprepme.com Greg

          Well, if you consider the fact that there are ~10,000 amazon affiliates in California it isn’t too hard to extrapolate some numbers. Say you average this group and consider a round number of $50 take home each month for each affiliate (trying to consider that there are some huge affiliates but probably a number of people who only make a couple bucks each month). At a 6% commission rate this would equate to ~$840/month in lost revenue for Amazon. $840*10,000 affiliates*12 months equals $100,800,000 in revenue a year.

          Sure, these are round estimates but you can quickly see how much money Amazon is putting on the line by removing these affiliates.

          Amazon is just making a statement and I’d argue that it is more of a political/posturing move than a economical one.

          Again, I’m not saying I agree with California passing this tax, just that we shouldn’t jump to conclusions that it is all California’s fault.

        • http://www.onethousandamonth.com/ Graham Lutz

          1. $50 average is probably very high.

          2. only a tiny minority are at %6 and a fraction of a fraction at 8% so a 6% average is super high as well.

          3.Revenue and profit are very different numbers. plus, when a large majority of products on amazon are sold by individuals, amazon’s revenue is significantly smaller than (avg. affilate commission amount / average commission percent X number of affiliates)

          4. Not only does Amazon have to pay taxes on these products sold through affiliates, but on every single product shipped to california. That is a hell of a lot more than what comes through affiliates.

          5. Why can’t Amazon make a statement or posture politically? They are one of the biggest companies in the world.

        • http://www.peprepme.com Greg

          Yes these are all estimates and all items shipped to California would then be taxed (however Amazon wouldn’t be paying this sales tax- they would just have to collect the tax from the buyers and then distribute it to the state agencies).

          Amazon has every right to make a political statement or use their influence. All I’m trying to say is that this isn’t a one sided story

        • Alan

          Greg is right on, all they want to do is Tax, Tax, Tax, instead of create oppurtunity and jobs. Don’t blame Amazon this blame the rich man is so ignorant who do you think creates jobs in this country it is not the poor.

        • Alan

          I meant Graham Lutz is right on.. They are very anti business and capitalism

  • http://www.onethousandamonth.com/ Graham Lutz

    ::Side Note::

    All six states that implemented this kind of law were controlled by democrats. Not to say that republicans are any better, but if you’re an affiliate or any other kind of business person, it might be worth thinking about this next time you’re going to the polls.

  • Joe

    Vote republican. Democrats passed this into law. Rebublicans would never allow it.

  • Joe

    Democrats passed this into law, as was the case with all the other states. Republicans would have never allowed it. So if you want to know how to stop this in the future, vote republican.

    • http://lyndsysimon.com Lyndsy Simon

      This just isn’t true. I’m in Arkansas, and my state Rep is John Burris. He’s minority leader of the Arkansas House and a hardcore conservative.

      This legislation was couched as a “protect small business” law, and sailed through both houses and the Governor’s office with no trouble.

      • http://www.onethousandamonth.com/ Graham Lutz

        Yeah, the republican are simply the lesser of two evils. They are all for big government, more control, and less freedom. No two ways about it.

      • Alan

        I am also from Arkansas and the Democratic governor Beebe pushed it through and he is a hard core democrat. Read the Arkansas Democrat it will tell you that overall the democrats voted for this is also want to increase property taxes as well. During a recession.

        • Steve

          I see several people wanting to blame a single political party for these nexus laws passing. But doing so misses the point that in every state where these laws passed, they only did so with SIGNIFICANT bi-partisan support. In other words, plenty of politicians on BOTH sides of the isle supported these bills.

          It is dangerous to blame only the Democrats, as doing so only serves to let the other guilty party (Republicans) off the hook. I can’t stand it when people get so wrapped up in partisan politics, that they fail to see when “their guys” are just as guilty as the other party when it comes to laws like this.

          Bottom line: It took significant cooperation from BOTH parties for these laws to pass. You’re only fooling yourself if you think that only one party bears blame here. The facts simply don’t support that viewpoint.

          Disclosure: I am a hard-core independent, very distrustful of both Democrats and Republicans.

      • http://Www.noobstarter.com Gabe

        I’m in Arkansas too, walmart had a HUGE part of why it passed.

        I just registered a dba in Missouri and setup a bank account up there to look legit…back in business baby..Arkansas just lost my income tax.

        • Lyndsy Simon

          Unless you incorporated, this is called tax evasion. Or in this case, perhaps as an accessory since Amazon would be responsible for collecting it.

          Also, you do realize that you still have to pay income tax on this, right? Otherwise, everyone would incorporate in states without income taxes…

        • http://www.techatlast.com Olawale Daniel

          Very nice :)

  • http://lyndsysimon.com Lyndsy Simon

    I’ve gotten around this by setting up an LLC in Delaware. It’s definitely tax avoidance, but it is not tax evasion.

    You can read about my experience on my site – I intend to launch a new site all about the process, but I’m waiting to do so until the end of July, when Arkansas residents are cut off from Amazon. Once that happens, I can be confident that my structure works and will recommend it to others.

    The costs are not trivial. It’s about $100 to incorporate, plus $100 / year for a registered agent in the state. Then you’ll need a mail forwarding service because Amazon needs a physical address for your profile. Finally, there is a $250 / year franchise tax for LLCs in Delaware. All told, I’ve added about $500 / year to my expenses.

    • http://www.peprepme.com Greg

      This actually sounds like a good deal for people in CA. We have to pay $800/year for franchise tax.

    • Pat

      Lyndsy, are you sure this is okay? Have you contacted an attorney about this?

      I’d advise reading the discussion on this forum here: http://www.abestweb.com/forums/affiliate-tax-laws-543/any-solutions-without-moving-120880.html

      As someone mentioned on Chris Guthrie’s post about all this: “I know of one affiliate who had asked Amazon for reinstatement once he moved away from his state that implemented the tax and Amazon asked for all kinds of LIVING documentation (rental lease, utility bills), NOT business address documentation to make sure he actually was residing in the new state.”

      • http://lyndsysimon.com Lyndsy Simon

        If you’re saying you’re moving, then Amazon is still entering into an agreement with *you*. Hence, they want to make sure that you are in the state you claim.

        If you form an LLC, then Amazon is no longer dealing with you, they’re dealing with the LLC. The LLC, as a legal entity, exists in the state in which it is organized. It can have operations in other states, which will usually require a “certification of foreign corporation”, but at least in Arkansas this requires that commerce take place there.

        My Delaware corp has a DE address, a DE bank account, and is incorporated in DE. If my company is sued, the service occurs in Delaware at the location of my registered agent.

        My attorney has cleared my own arrangement – obviously, I can’t speak for anyone else here.

        Is Flynndustries, LLC a California corp? If so, you might consider dissolving it and transferring your assets to a corporation in a more friendly state. Most people choose Nevada, Montana, or Delaware for this. I chose Delaware because they do not have a state sales tax – and therefor there is no mechanism for the “Main Street Fairness Act” to hook onto. I believe Montana is the same, though I’ve not researched them nearly as thoroughly.

      • http://lyndsysimon.com Lyndsy Simon

        I read the thread – there are certainly some people there with very strong opinions. In the interest of being absolutely sure, I’ll contact a second attorney in my state of residence on Monday.

        This certainly is expensive. If nothing else, it will light a fire under me to keep up the IM game – I’ve got skin in it now, and the receipts to prove it.

        • http://www.calawreport.com John Corcoran

          Lyndsy/Pat:

          You’ve got some creative thinking here, but I would be very cautious. I am an attorney licensed in California, although I’m not a tax specialist. I have followed the Amazon.com bill for some time, out of my own interest as a blogger.

          Given the questions regarding the constitutionality of the new law, I’d say the final chapter in this story has yet to be written. I wouldn’t be surprised if someone files suit to prevent enforcement of the law, delaying its enactment, while the constitutional issues are worked out.

          The California Board of Equalization (which collects sales & use taxes in California) issued some guidance on this issue on Friday. You can see their guidance here: http://www.boe.ca.gov/news/pdf/l284.pdf

          The BOE’s guidance states that the new law includes “any retailer entering into an agreement under which a person” … “for commission” … “refers potential purchasers of tangible personal property to the retailer.”

          I read that as saying that as long as there’s a “person” who is located in California who is referring business to the retailer, then the tax applies.

          So, let’s take the example of Pat. If Pat were to close up Flynnindustries, his California-based LLC, and open up a new Delaware LLC, he would still be a “person” based in California referring people to Amazon.com, and therefore subject to the tax. Of course, that assumes it’s constitutional, which is still an open issue.

          It’s possible that this issue won’t fully be resolved right away. Sometimes when new legislation is adopted, the legislature leaves some gray areas unresolved, left to be interpreted by agencies (such as the Board of Equalization) or the courts. In the meantime, I would proceed with caution. I’ll be interested to hear what Lyndsy’s attorney says.

          Here’s my previous blog post on the Amazon.com bill: http://calawreport.com/2010/09/is-the-amazon-com-tax-coming-to-california/

        • http://www.calawreport.com John Corcoran

          Lyndsy & Pat:

          This post inspired me to go one step further and write an updated post on my blog (complete with a quote from our very own Pat!).

          You know, after researching this issue further, I think this issue really isn’t going to be resolved soon because the California law is significantly different from the similar laws passed in other states. Also, the California state Board of Equalization (BOE) — which collects sales and use taxes — isn’t going to collect the tax from Amazon until October, meaning nothing is going to happen soon. Amazon has said it won’t pay the tax in October, which will mean it will be the BOE’s turn to decide whether to sue.

          Here it is: How the Amazon.com Tax Will Affect California Bloggers and Internet Marketers
          http://calawreport.com/2011/07/amazoncom-tax-affect-california-bloggers-internet-marketers/

    • http://weddingbuggy.net mark

      Great point Lyndsey! A corporation is not a person. We are thinking of setting up in another country since my wife is from abroad. She needs to fork out a few clam shells to set up residence in her native country. At the same time, I will be working the c-corp angle.

      • http://live-your-love.com/ Brankica | How to blog

        This is a good idea depending on what country she is from.

        I am from Europe (Serbia) but can not see this ever working for me. Although we don’t pay taxes for this over there, you can’t register for piles of affiliate programs, you can’t register for Paypal, and not to mention times and times my Google Adsense checks disappeared in the mail.

        The worst part is that everything is functioning perfectly there, banks are working, laws are in power but because of previous years, so many programs won’t open for citizens of my country.

        I could not see “real money” until I moved to USA and registered everything here. I hope everyone that is hit by Amazon change will sort it out and continue making money, but even if they don’t I am just thinking about so many opportunities we can find to monetize our sites.

        Like Pat said, some might just sell the sites and make money.

        Anyway, just trying to say that I support everyone who is hit by this (cause tomorrow it can be the rest of us).

  • http://www.stevescottsite.com Steve@Internet Lifestyle

    Pat,

    Thanks for this article. The Bills being passed around the country sure has been a kick in the privates for many people. In some cases affecting peoples primary source of income.

    Thanks for some great ideas on other ways (and places) to promote.

  • Victor

    Hi

    Do anyone of you know if this will happen for Amazon affiliate users in the UK?

    • http://optima-lifestyle.com Cristina

      Why would it happen to the UK? Taxes in every country are different.
      The interpretation of the law they are doing in some of the US states has nothing to do with UK laws.

      They could “invent” a new tax in UK or any other country in Europe. But it’s a completely different story.

  • http://www.dubai-information-site.com Sunil from The Extra Money Blog

    this will likely spread to more states going forward – further emphasizing the need to diversify. another option is to offer similar products – or start sourcing your own and make a higher profit margin if your traffic is significant enough to make the endeavor worthwhile

  • http://www.makemoneyontheinternet.com Chris Guthrie

    I should also add that I’m buying any Amazon websites that people want to dump that live in California. I figure that I’m in the safest state for now (Washington).

    In the end it sucks because states are looking for ways to collect more taxes. Then the businesses find ways to continue using the loopholes (closing down affiliate program) and as with all politics the people that end up getting hurt the most are the people caught in the middle: tax payers

    Super lame :(

  • http://www.kidsiphoneapps.net Pavel

    Thanks for this article, Pat.

    I wasn’t affected that much by this predicament, since Amazon was not even in the top 10 sources of income for me. But I do feel bad for anyone who relied on Amazon for their livelihood.

    California has always been unfriendly to businesses, and this just makes it worse. I think this step is just the first in many to make small businesses in California suffer under heavy taxation. I personally will start making provisions to move my business to other states, and perhaps even another country.

    Good luck with your businesses!

  • http://www.workingtowardshome.com Carrie

    I am in PA and saw a commercial asking people support legislation for taxing online business. I think there is more than one organization, but standwithmainstreet.com is the one I saw. You can go to their website and see what they are up to in your state.

    I would suggest everyone contact their local state reps/governor and let them know the other side of the story. Some may not realize that there are affiliates in their districts who will lose their income if they try to pass legislation similar to CA.

  • http://www.losingitandlovingit.com/blog Angie

    Yes, I absolutely was impacted by this (got my last Amazon payment this week, I’m in IL). I’m over it now but I was and am still mad at the state. They can mess with peoples lives so easily it sickens me. Amazon may not have been a huge part of my business but there were companies here who were horribly impacted by it. So sad!

    I have just been finding other companies that will accept me and moving on. I still shop at Amazon, I always will. I understand their decision although I don’t like it obviously.

    Ever since it happened, things have actually been looking up for me so maybe it was just meant to be. Best not to dwell on it and just move on to bigger and better things.

  • http://www.freesitetraffic.org Jon Haver

    I live in Canada and am safe for now…however…something that hasn’t been discussed is does the location of the website hosting have any impact on the tax. I am not a Lawyer but if I wanted to read the law in the worst possible light it sounds like all websites physically hosted in California would be exposed to the tax.

    Amazon is at least not implementing this rule in its strictest sense but a politician may get another dumb idea and step up the enforcement of the rule.

    Good luck to everyone in California and the other affected states getting around this problem.

  • http://philfaqs.com Dave Starr

    As a former Colorado resident I would have been burned by this same type ruling, but long before Amazon threw me under the bus I got rid of all state tax issues (including having to pay _any_ and moved to the Philippines. Amazon treats me fine as an overseas affiliate. the Philippines imposes no tax on income earned from overseas sources and the cost of living is 40 or 50% lower than it was in the US.

    Frankly I can’t imagine why anyone who earns their living on-line (that is, someone not tied to a dirt-based job) would even consider living in a state with California’s tax structure. US citizens have the right to live anywhere they please, and no US citizen _has_ to pay state taxes … they are legally optional. Works for me, anyway.

    • http://weddingbuggy.net mark

      Dave, way to go! Have you visited El Nido? This little village rocks and they have wi fi every where. The electricity goes off every day for a few hours because it is run by a generator. We love the place.

      • http://philfaqs.com Dave Starr

        No I have not, Mark, but I’ll make a note of it. I don’t do much traveling to tourist-type places, been kinda busy lately making money and keeping more of it now that I don’t live in the US any more.

        • Alan

          Hay Dave great post, I was thinking of relocating but need to figure out how to make a living online first. Have any ideas also do you help anyone trying to relocate with question on how to do this. Thanks for your help.

  • http://financialbrink.com DLynn

    Ironically, I tentatively stepped into the Amazon affiliate arena just last week and put my first 2 links on my site. Guess they come off now!

    I’m bummed that I won’t be using Amazon, but I really feel for those who are hard hit by this whole mess.

    Thanks for another insightful, useful article, Pat!

    • http://philfaqs.com Dave Starr

      Alan, making a living is the key. As I mentioned, relocating abroad is not for people who are currently tied to conventional, “dirt-based” jobs. Pat knows a heck of a lot more than I do about freeing yourself from the clutches (and comforts) of conventional employment. That’s why I am regular reader and student of his. He’s actually more than generous with laying out virtually every single step he took along the way from turning his “job loss” into a tremendous life-changing opportunity

      (great story for the 4th of July weekend … real freedom involves taking some big risks and giving up the “status quo” in a major way).

      So learn from him and take action until you make it.

      Once you have a source of income, independent of where you live, then just move where you want to … once you attain independence, it’s just a matter of a plane ticket, really.

      If you want to know more about moving to and living in the Philippines, just click on my name, it leads to my blog where I’ve been writing about this issue for years … we should take this discussion there, perhaps. Godspeed.

  • http://ibuildchoppers.com david

    Sorry to hear about the California tax law.. but in any event if you are interested you can JV with me in Canada…

  • http://www.pharmacytechnicianhq.com/ Rob N

    Hi Pat. Thanks again for the awesome site, I always learn something when I visit. Makes me always look for an affiliate link when I do need to purchase something. For those that visit, I recommend you do the same.

    This is crazy. To all those affected, I feel your pain. I am in Utah and have not had this happen (yet), but as of July 1st Plattform Partners (an affiliate program site for multi college/tech schools – my site promotes pharmacy technician programs) dropped me because of some new regulations requiring more work on their part (or so they said). They set a threshold of 1000 referrals a month as a result, and I did not make the cut (I wasn’t even close, I had about 100/month click on the links and much less actual fill out the referral form). So, I just lost a good business partner that was a decent fraction of my current site income. I think it is crazy since I was getting them referrals every month, but I understand there is a cost on their end to maintain the relationship. Crazy, I hope the Amazon thing gets fixed, I remember there was a SPI podcast that had a guy that had almost $1 mill in sales, I hope he wasn’t from California, that might be worth getting a place in Vegas.

    Thanks again, -Rob (fellow asian half-breed)

  • http://www.marketingplex.com Chen | Marketing Tips

    That’s a sad news for affiliates in California. I am not affected but it serves as a lesson to all of us not to put all our eggs in one basket. Time to diversify & prosper :)

  • http://live-your-love.com/ Brankica | How to blog

    I guess this just proves that we should never keep all the eggs in one basket. Although I don’t rely heavily on Amazon, it still pays some small bills for me and I don’t want to lose any income. I hope they won’t start that law in GA and I also hope people from California won’t have to go through this, but that someone will manage to put an end to it.

    I don’t mind paying taxes as long as they let me earn the money to pay them :)

  • Gary Logsdon

    My son and I have an LLC in CT and got our Amazon letter terminating our agreement couple of weeks ago. Fortunately, it only lopped off about 5% of our income. Still pisses you off! I’m with you, angry at both the state and Amazon.

    • http://lyndsysimon.com Lyndsy Simon

      Are you physically located in CT?

      • Gary Logsdon

        Yes we both live in CTand the LLC is registered here.

  • Ric

    Hey Pat, How about clickbank products? These are digital books and products, are they in the mix on this?

  • http://www.howtovanish.com Trace Mayer

    “Anything that sounds like a workaround or a loophole doesn’t really sound that safe to me, so I would advise against it. … We’re just pawns in this ongoing battle for a bottom line, and it’s very unfortunate.”

    Pat, months ago at the La Jolla pizzeria meetup you attended I remember mentioning a product we developed to preempt address this very issue. Bill Rounds, a CA attorney who co-authors HowToVanish.com with me, and I wrote the State Income Tax Optimization Guide (http://www.howtovanish.com/products/tax-domicile-report/). If a CA resident had implemented strategies in our guide then they likely could have avoided losing their income stream(s). I know a few Internet marketers at at that meeting who, unlike you, took pre-emptive action in legally planning their affairs and they still have their Amazon affiliate income streams.

    But you are right, we are just pawns and this battle over the bottom line is only going to intensify. You are their livestock to be milked or turned into hamburger. The more you continue to make in your monthly income reports the more they are going to milk you. This is perhaps the greatest single risk an entreprenuer faces in this challenging business environment: *jurisdictional risk*.

    In my opinion, the wise entreprenuer is diversified not only across states but also countries with trusts, LLCs, multiple passports, addresses, bank accounts, etc. Fortunatenly, for the Internet entreprenuer, as opposed to a brick and mortor one, it is somewhat easier to legally plan their affairs and minimize the risk to their business, income and lifestyle.

    Good luck and happy milking!

  • http://ekosdeux.com Carlos

    Someday politicians will realize that taxing companies more to cover their runaway spending will drive away more jobs, income, and people than they can imagine. This is why the USA has such weak industry/manufacturing, and will continue to lose these jobs to overseas. I hope they never come with these laws to LA/TX, or I will be very unhappy. Hope everyone here finds a solution to these unnecessary problems.

  • http://propodder.com Jay

    Pat, great article as always.
    One thing I noticed, granted I just buzzed through all of the comments, but no one has noticed what Amazon is really trying to do, and that’s get people angry enough to get off their dead butts and boot these bozos out of office.
    By yourself, your voice is pretty much meaningless… but 25, 000 strong? C’mon Californians… make your presence known and start letting these politico fascist morons know that you can take them out of office just as easily as you put them in.
    Pat mentioned that Arizona has been talking about the same type of statute. Think that’s pass here? Hardly. We’ve seen what’s happened in Illinois, Indiana, RI and now Cali. We’ve written our State Senators and Reps demanding that they don’t destroy our livelihoods our we’ll be putting them on the streets in the next election.
    Idiot laws are made to be overturned… so get started overturning them.

    • Ye Tun Win

      I totally agree with you, Jay.

  • Rich

    We’re stuck between two behemoths: Amazon and the Government. This just happened to me too, in Connecticut. The big box stores supported the states in trying to force Amazon to collect state taxes, but actually lots of smaller local businesses are happy about it too. Amazon gets a big pricing advantage because of skipping the tax collections. So far I don’t think any state that enacted this legislation have actually seen an increase in sales tax collections, yet they will see a decrease in income tax collections due to former Amazon affiliates making less money. The states figure it’s just a matter of time before all 50 states follow suit, then Amazon will be forced to comply. Big Brother in action.
    Do as Pat suggests: Diversify your monetization methods. Use a few different (not only Amazon) affiliate programs, sell ebooks, sell domain names and websites, etc. The Amazon affiliate story is not over, rather it’s just beginning in my futurescope…

  • http://www.print-fo.com/printers/best-all-in-one-printer/ Ryan

    Wow, that’s crazy. Thank God I don’t live in California. And sorry for all of those that do. This is really unfortunate. I hope everything works out. Thanks for the options Pat. Everyone in the USA, have a great 4th of July!

  • http://www.bloggingteacher.com Paul Cunningham

    Moving your LLC inter-state seems like no big deal when you consider the Double Irish tax loophole companies like Google and Microsoft get away with using. Then again, you never know what govts will choose to crack down on.

    I guess you could all move to Australia ;-)

  • http://www.moneymanagementsmarts.com Paul Warren

    You know what? screw Amazon. If they are going to drop affiliates that easily, they don’t deserve our traffic. You can easily find someone else. The bill went to the Senate in Minnesota because of the last minute vote of a putz from Duluth. Think I’ll egg his car.

  • http://www.ramblingsofawahm.com Allie

    Pat,

    This made me so angry with Amazon. I have supported them for years as a customer and just became their affiliate recently. Now I refuse to shop with them.

    I have lived in CA all my life. Paid sales tax all my life. I believe it is the most “fair” tax you can charge people if needed. If you do business in a state that charges sales tax, then follow the laws.

    I don’t want this to be political, I don’t like politics, either side.

    I feel so angry for the people that made a living off sales from them. Can you imagine you work for AVON. Avon corporate all of sudden says to drop all their sales force, overnight. Many sales reps would be out! How would they pay their mortgage? Groceries? This is no different, yet Amazon thinks it’s ok to “fire” people overnight! Without any notice.

    I am very leery of any affiliates now.

    Thank you Pat and everyone commenting for the alternative choices.

    ~Allie

    • http://Www.noobstarter.com Gabe

      Amazon doesn’t want to drop affiliates, but they can’t afford to pay affiliates and pay 10% tax on a lot of their products.

      Plus the only ammo they have against the state is to drop Affiliates.

      • http://Www.peprepme.com Greg

        Amazon wouldn’t have to pay any of the sales tax. The only added expense would be to manage the collection and distribution of the sales tax.

        • Patrick

          They dropped all of their affiliates in the affected states as a way of blocking the spread of these types of laws. There has been a huge push by the states to tax all online sales, but laws requiring online businesses to collect and distribute sales tax for each state would place an undue burden on these businesses. Each state has it’s own laws and procedures for collecting sales tax, so an online business selling across state lines would have to deal with 50 separate state governments.

          On an entirely different level, there is a constitutional issue at work here. Technically the ability to regulate interstate commerce, or the shipment of goods across state lines, falls under the powers granted to the federal government, not the individual states. So, it will be interesting to see how this plays out in the courts, and I would not be surprised to see this issue finding its way to the U.S. Supreme Court before it is finally settled.

  • Shawn

    Go international. Not sure how it compares to California, but Mexico may be a good alternative. Thankfully, I don’t have to worry about taxes in Dubai :)

  • http://www.hemal-patel.com Hemal

    Omg, what a blow to those CA affiliates! I rely quite heavily on my recurring amazon paychecks and would be frustrated more than anything if they shut it down here in FL.

  • http://www.makemoneyonlinewithvic.net Make Money Online with Vic

    Man all I can say is that I really feel for CA affiliates. Affiliate marketing is really, really hardwork and there’s no salary, benefits or “A” for effort. Affiliates come through with sales and make other people a lot of money with their blood and sweat and it just sucks to see this happen.

    Good luck affiliates, you’ll make it!

    Vic

  • http://www.kaizenvision.com Aileen | Kaizen Vision

    Thank you for this post Pat! I’m a Californian too and I was dis-heartened when this actually came to pass. I understand that it doesn’t do any good to point a finger at which side made the worst decision – I do wish California didn’t make their decision the way they did.

    I appreciate your suggestions for diversifying, becoming a Reseller and being an affiliate else where. As always – you give some great empowering suggestions and action steps. I appreciate the advice you offer :)

    • http://www.UnderstandITNow.com Tom

      Excellent point Aileen. People today are quick to take sides. We are all in this together and need to work together on solutions.

  • http://Unwireme.com Rich Polanco

    Coincidentally, I was thinking about this same issue this week. As it has been said, diversification is the key.

    If you rely on Amazon, Google, or any other third-party, you soon realize you are completely at the mercy of their business decision. It may suck for you, but it’s their business, so they can do whatever they see fit with it (and handle the ensuing backlash).

    The conclusion I came to is that PRODUCT CREATION is your safest bet when it comes to building a more independent business. You control your product marketing, creation, release schedule, pricing, etc.

    Affiliate marketing is great fun and profit when it’s humming along, but I’d rather do the effort to build and market my own stuff, on my own terms. It is just not worth it to put so much sweat and tears building something that can be taken away with the stroke of someone else’s pen.

    My 2¢…

    • http://www.UnderstandITNow.com Tom

      I agree Rich. Product creation is key to controlling your business because you have 100% control. I think affiliate income should be looked as a bonus to your income. Anytime someone other than yourself is in control of how you get paid opens the opportunity to misuse.

  • http://www.UnderstandITNow.com Tom

    If the new state tax laws would help I would be all for it. The thing is our elected officials continue out of control spending. At some point no amount of taxation is going to help. Look at the US Debt Clock at http://www.usdebtclock.org/ on the bottom left the three categories Social Security, Prescription Drug and Medicare Liability programs exceed the US Total National US assets by more than 39 trillion dollars. The country is heading for bankruptcy. You can also view your states debt by clicking on the State Debt Clock on the upper left hand side. With that said be prepared to pay even more taxes in every area you can think of.

    Eventually Amazon.com will have to eliminate the Affiliate program all together because all the states will be implementing similar taxation laws. Amazon.com’s response is somewhat childish to a degree. I thought they looked out for their customer’s. I guess not. Thankfully I do not use their affiliate program. If they leave their affiliates hanging in the wind like this then we should respond in a similar manner by not using their services. Barnes & Noble is a good alternative. I know am starting to look at alternatives to Amazon.com offerings. I think their strategy will back fire on them in the end.

  • http://bethstowers.com Beth Stowers

    Thank you for this article! I only knew of the tax hitting Illinois and the problems it had caused affiliate marketers there. You (and your blog commentators) certainly have some great suggestions and alternatives. :)

    I definitely believe that anyone should have multiple streams of income set up and not just rely on one (or even two) sources of income. (Whether it’s a job, a brick and mortar business, real estate, or Online Marketing). So, the more streams of income one has, the better. If one gets cut off, there are more to fall back on while you get your passive income built back up.

    And…it looks like there are quite a few states implementing these taxes. Because each state in our Union (I live in the US) is struggling financially, I foresee more taxes coming so that states can work to keep themselves afloat and operating. Of course, I don’t believe that more taxation is not the answer.

    Because Amazon has pulled out of a few states and may pull out of more, Online Marketers now have to spend less and then there is less money in the economy. This also means that Online earnings come to less and there is less overall tax money in each state’s financial system. The states are really hurting their economies in doing this, and I think they need to look for ways that truly strengthen their economies and their states.

    That’s awesome that there are so many other options out there and I feel for the people who did a bunch of business with Amazon and got things suddenly cut off. :(

  • http://www.catechismclass.com Matthew

    As a tax professional by day, I am glad to see your mention of Quill and a good explanation of nexus and other tax issues. For those who don’t want to set up an LLC or officially start a business (after all there are tax consequences to this and up front costs), I recommend using an address in another state. Do you have a friend in another state or know anyone that will let you use their address? As an Amazon affiliate in a state that doesn’t have an Amazon Tax Law, I never get any postal mail from Amazon. So why not just use an address in another state and say that you moved. That seems to be the quickest way around this issue.

    • http://www.UnderstandITNow.com Tom

      Having an address in another state will not be the answer because when you login to the Amazon affiliate program they check the location of your IP address.

      • http://paralegalhq.com Manspaugh

        They never checked my IP address. And if they did, they did a bad job. I’m in CO and using a WI address to be an affiliate.

      • http://www.catechismclass.com Matthew

        They can’t be checking your IP. That would mean that I could never travel and work on my links. Plus, how could they track mine if I never log into my account?

  • http://wealthalchemyblog.com/ J. Scott Moody

    If you want to be secure that this won’t ever happen to you then you only have one choice . . . move to New Hampshire. NH is the only state without a state OR local sales tax and no state OR local income tax. And in some parts of the state, no local property taxes to boot. If you can live anywhere as a blogger (if you are full-time), why not be where your taxes are the lowest :-)
    http://wealthalchemyblog.com/2011/06/americas-tax-haven-no-income-sales-or-property-taxes/

  • Sarah

    I’m in Illinois and got the boot. I was an amazon affiliate for a long time, but had only recently gotten serious about monetizing my websites with their links – just one month before I got the “Dear Johnette” email. I pretty much planned to do just what this post suggested, and become a Barnes & Noble affiliate. I still plan to publish ebooks on Amazon’s Kindle, but now I actually plan to publish on B&N Nook as well.

    Good point – it seems almost treacherous to be an affiliate for these companies if they are the ones responsible for the Amazon tax issue, but then again, I thought it truly short-sited and utterly soap-boxish for Amazon to eliminate the income of it’s affiliates, to prove a point.

    But this is just my $0.02

  • http://www.marketingsyndrome.com Bo Bang

    I knew this was going to happen in California anyway, but I was surprised how badly Amazon treated its affiliates. I have no idea why Amazon hasn’t planned for this in advance.

  • http://www.lraquelpeterson.com Lauryn

    Sooner or later, there will be an elimination of affiliate marketing programs or a flat online tax to collect finances. How this will play out remains to be seen, but I’ve read several compelling responses so far:

    A) The need for us (the citizens) to stand up to and protest these changes ourselves, with our votes & our feet as our voices

    B) The importance of checking into a corporate shelter to protect your business (I’ve done this, but as we all know you have to do your research)

    C) Moving on to other affiliate or online moneymaking proposals for your business

    D) Diversifying your online niches.

    I have never been a heavy Amazon affiliate. In fact, my best moneymaking resource is product creation. This actually inspires me to look into even more product creation ideas.

  • http://www.catechismclass.com Matthew

    You said, “Similar laws are currently proposed in Arizona, Hawaii, Minnesota, Mississippi and Vermont.” What are the names of the bills in these legislatures so that we can contact our representatives AGAINST these bills?

  • http://www.bostonconcertevents.com Boston Girl

    This is a perfect illustration as to why it is IMPERATIVE that we elect officials who don’t believe in the government regulating the bajeebees out of us.

    As an entrepreneur practically my entire life (real estate investor, home builder, internet business) I think we have to stand together for freedom to prosper and grow. Because even if we personally don’t use Amazon, this is really about taking away yet another freedom.

    It always amazes me that politicians who have never even run a taco stand, think that they know better how to run a business.

    The regulation and intervention must stop, and we can make a difference by speaking up.

    Dee

  • http://www.leavingworkbehind.com/ Tom Ewer

    For me the key to all of this, and Pat does mention it, is diversification. It is a key to business in general, let alone internet marketing. Never have all your eggs in one basket.

  • http://paralegalhq.com Manspaugh

    Can’t you simply use a different address to have Amazon send you the checks? As long as you specify in your taxes that the money’s coming from Amazon, you aren’t doing anything illegal. Not sure how that works.

  • http://philfaqs.com Dave Starr

    Not to delve too deep into legalities … where I have zero qualification, by the way … I think a lot of folks throwing out ideas here have missed an important concept.

    The whole affiliate sales concept is built around a contract. That’s what you do when you click on the I Accept button on Amazon’s (or any other entity’s sign up page). A contract between two persons … you, and the corporation.

    Just using a mail address in another state doesn’t change the fact that you are still party to the contract … the same person.

    However, another corporation, such as an LLC that you set up, becomes a “person” under the law. A different “person” than the “person” who originally entered into the contract which Amazon has now chosen to abrogate. Therefore that new “person” can enter into a contract from another state, most likely legally. You, as the same individual who signed up in, say, California, do not become someone legally different if you start receiving your mail in Nevada. But a Nevada LLC (which you may happen to own), legally can enter into a new contract, because “they” are legally a different person.

    It’s a pretty important distinction, the difference between your personal identity and your possible corporate identity. Also, a pretty complex and somewhat expensive matter for those who only earn a few bucks a year from Amazon. But for big players? It can be a great move.

  • http://www.matchrateplus.com Brian

    The United States economy and political leaders are both crashing and failing in this new millennium……and the internet has been a catalyst to this demise.

    Perhaps the U.S. government should study just what percentage of income from sales is going offshore. Not into the pockets of U.S. citizens living abroad, but to foreign internet marketers.

    When online products are sold to U.S. citizens and commissions ranging from the paltry Amazonian 4% to the very profitable 75% to 100% commissions paid on digital goods are paid to foreign affiliate marketers, does the U.S. collect income tax from these marketers?

    No. When online and mobile sales are growing in the U.S. and these commissions go abroad, it is lost capital from the U.S. economy.

    Now, a smart political legislator would keep that income in the U.S. and charge income tax, right?

    Based on the recent facts, our political leaders would rather make decisions that destroy online marketing for U.S. citizens, and allow foreign affiliates to have full reign on U.S. based online sales.

    Surely, we should vote for political leaders who contribute to the U.S. economy rather that those who make decisions to export work and tax free U.S. dollars to offshore countries.

  • http://www.jonalford.com Jon

    So sad to see regulation creeping into the wild west here :)

    Well, the same sage advice stands to diversify and build a sustainable business and brand. Plan to work at it over the long haul and build your email list. Let’s all pray for tax headaches; that at least implies we’re making sales all over the map!

  • http://www.internetentrepreneurconnection.com Hector Avellaneda

    I think that there is going to be a trend here. This really sucks for the affiliates in the states affected but obviously presents a huge opportunity for those in the states that are not affected.

    However, with many states nation wide having budget short falls and deficits, I suspect it wont be too long before other states follow suite and do the something similar.

  • http://www.edgeofdavid.com David

    They did that to us in CT a month ago when Gov Malloy sighned a smilar bill. It’s annoying because I’ a resident of CT but I live over seas and am traveling about for the next few years. Having $500 worth of my monthly income gone that you worked months and months to build is a big deal.

    I don’t really understand who this benefits, but it is just another reminder of the need to diversify. Very good article Pat.

  • http://www.webbusinesstoolbox.com/blog/20-ideas-to-guarantee-traffic-to-your-blog-or-or-how-to-promote-a-blog-post/ Monja

    It seems to me – affiliate marketing simply works TOO good and it means that brick and mortar stores are afraid that sooner or later they can’t compete anymore with the internet stores (which is true due to less costs when you run an internet business) and therefore the governments need to find ways to make it more “fair” in their eyes. if it´s fair or not… well i doubt that it is.

  • http://www.jaimiedeephotography.com Jaimie Dee – Atlanta Wedding Photographer

    WOW. California suuuuucks so bad. Can’t believe it.

  • Mark C.

    Pat.

    This article, although it doesn’t affect me directly because I live outside California, is EXACTLY the reason I frequent your site. This is high quality content on steroids!

    Thank you for putting this matter in perspective.

    Something else to consider is that many states are requiring sales tax to be charged if the web server physically resides in their state – regardless of where the product is shipped from or to and regardless of where the customer is.

    One tax expert that I follow (Dianne Kennedy) says that more and more states are doing this and she recommends using web hosts that have their servers outside of the U.S.

    My feeling is that this whole mess is just evolution of the process. There is a void of sales tax over e-commerce and the system is correcting itself. The depressed economy and tight state budgets is accelerating it.

    My 2 cents.

  • http://www.homenotion.com/blog Liz

    I personally think Jeff Bezos and Jerry Brown should be ashamed of themselves, but as you’ve mentioned, there are alternatives and it’s not completely gloom and doom for the affiliate marketer.

    Probably the biggest lesson learned here is not to put all your eggs in one basket.

  • http://www.kaktus-info.com/2011/04/ideale-kaktus-erde.html Matthias

    I am so glad that I live in Germany! Here we are still able to use the Amazon program without problems. :)

  • http://www.peprepme.com Greg

    I just thought about another twist to this debate. What about people who sell their books on Amazon via the Kindle? I live in California and I sell a e-book through Kindle. I wonder if this would be affected by the new law?

  • Paul

    If any of you want to pass your sites to me in the UK, i’d be happy to babysit them for you for a commission and you keep the major slice.

  • Patrick

    California has dug itself into a huge hole by maintaining such high taxes, and an unfriendly business environment. Now it is trying to dig itself out of that hole by attempting to force out of state retailers to collect sales tax for them, which is nothing more than a short sighted attempt at leveling the playing field. However, the California legislature is too dim witted to see that penalizing those retailers who have the good sense to do business from other states will not work. When forced with the choice they will simply do what Amazon did, pick up their toys and go home. The only people hurt by this is affiliates who have the unfortunate disadvantage of residing in a state where business is a dirty word.

    As for me, I’ll be leaving my company as a Georgia LLC when I move back to the golden state in the next few months. I really doubt Amazon will care where I am sitting when I work on my site, just as long as they don’t have to mail my checks to California. It’s all a legal grey area. Where is any single person internet business really located? In the state where the principle resides? In the state where the server is located? Or, in the state where the company was formed? California is going to have quite a mess on its hands as it attempts to wrestle with that question.

    We have entered an age where a single individual can be doing business in all fifty states, while sitting on a beach in Hawaii sipping margaritas. Therefore, I can not think of a better impetus for the federal judiciary to step up and hand down some sweeping rulings on the matter. All it will take is enough lawsuits making their way into the federal courts. Until then we will all have to ride it out, and just like Pat said, diversification of income streams is the best way to do that.

  • http://internetbusinesstactics.com/the-nexus-amazon-tax-solution/ Kai

    I have no idea if emailing the governor and telling him how this bill has affected your business will do anything but if you want to, here is the contact form for your convenience.

    http://gov.ca.gov/m_contact.php

  • http://financiallyeliteblog.com Dwight Anthony

    Now is a good time to get away from the whole amazon affiliate model if you don’t have much skin in it. If you are making a living off amazon, then definitely looking at moving business to another state as an LLC. However, now would be a perfect time to diversify your assets and work towards true financial freedom and passive income.

    Info. products are easier than every to make these days, why not look into this as well?

    P.S. Pat i’ve added SPI to my blogroll as i respect it as an authority in the passive income niche.

    Dwight Anthony
    Financially Elite Blog dot Com

  • http://www.nudeartposters.com/go/welcome Mulah Julah

    As a California affiliate, I’m VERY VERY VERY pissed! Amazon has many amazing widgets and is very popular; they’re stupid to drop such a large market. HOWEVER, there are alternatives!

    **Books? Try Barnes & Nobles, Better World Books (CJ)**
    **Art? Try Art.com, AllPosters, and Zazzle (CA-Based, so safe!!)**
    **Electronics? Buy.com (CJ), Best Buy, Sears, Home Depot**
    **Toys? Toys R Us (PepperJam), CJ.com**

    THERE IS LIFE AFTER Amazon. And as always, don’t depend on a single source of income.

  • Andrew Adamson

    It is good in the long run for Amazon to take this stand. We are all over taxed for the the simple reason, we have taken it from them with no tea party.(Like the first one) We have to fight for what is right. My idiotic state and this country has lost tens of thousands of jobs over the last couple years by making laws that penalize businesses. We have to hold the line and then hopefully reverse the trend. That will only happen if we fight against it.

  • http://mytechmedia.blogspot.com Tomm @ Technology Media Blog

    Hi Pat, I,m so glad I’m reading this now. I’m new to Amazon and this would be very useful. Thanks bro!

  • http://www.etres-heureux.com Jean-Luc

    In France Amazon.fr affiliate program is still running
    We have high taxes too but good wine ^^

  • http://www.wrightcomputing.com/blog/ Paul Wright

    Wow, scary thought, I don’t make a lot from Amazon but I get a reasonable income. What a waste of the time in building a website to just have them say sorry were not letting you be an affiliate any more. I think using other affiliates has got to be the solution, I also use CJ and they have a lot of products available.

  • http://financialplanningapprentice.com Robinson

    Big government at work. Jerry is just getting started.

  • Anthem Salgado

    I wasn’t seeing big bucks from amazon either but definitely bummed whe I heard the news. Thanks for delivering this post and offering suggestions!

  • http://www.layoutaday.com Lain Ehmann

    Not sure how anything that stifles commerce and punishes small business can be good… but it won’t be long before EVERY state (except perhaps NH) follows suit.

  • http://realestateinvestorscommunity.com Boris

    That’s really disappointing. As I remember jumping on board just not so long ago. Surprisingly the banners are still up, but I can’t access the account. ha.

  • http://www.amperspectives.com Andy

    Would it be out of the question for me (as an example) to provide an affiliate tag for people in CA from my account in my non-taxed state?

  • http://costumes.org Tara

    I am in a serious bind with this, I made an average of $8000 a year from Amazon, but mostly from sales of inexpensive research books on costumes, paper doll books, and a bit on costumes and DVDs. I haven’t found any book place with smart enough links or even with half the books i sold before. I get a fair income $150-300 a month from Adsense, but not enough to pay for the technical expenses of running such a huge site. Are there any other book sites that actually have smart book links with a real body of books that don’t just stick to bestselling fiction? Powell’s and Barnes and Noble both seem to put up next t nothing when i do searches on their site.

  • http://www.InMarketingTips.com Kent Chow

    Thanks for sharing the affiliate programs links. They are really helpful. I am also impacted and updating my mini-sites to other affilate programs. I heard Ebay Partner Program would be good too. You get paid by driving traffic to Ebay. I’d give a shot and hope to get approval soon.

  • http://conceptships.blogspot.com Cryzzl

    Hi Pat! I’ve been following you forever! I’m so glad to see this topic as we were just wondering about this last night. I’m just getting started with my blog but my husband has a network of concept art blogs that are blowing up. He wasn’t making a lot from Amazon, but it was important to him to promote the artists’ books out of support for their work. He left the amazon widget up even after they ditched us because of that, but has now taken it off because we’re mad at Amazon too. We thought about setting up business in Wyoming, but they track your ip address so like you said, you actually have to be operating from there.
    I wonder what’s going to happen if most of the the states adopt the tax law and they lose the majority of their affiliates. Will they cave in or is their business strong enough without affiliate sales?
    Thanks for the information about the alternatives. I’m looking forward to researching that further!

  • Richie Allen

    I’m on the side of Amazon here. I think these states’ attempts at capitalizing on internet businesses is disturbing. This will change the game for affiliate marketers and those that earn from them. It’s a HUGE problem. You’ve pointed out all the problems. I was about to launch a site and begin to build my affiliate sales, but if it happens here in Texas, I’m screwed. This makes me have second thoughts about starting.

  • http://internetbusinesstactics.com/the-nexus-amazon-tax-solution/ Overturn Nexus

    According to 4 different attorneys, the only way to legally get back to being affiliated with Amazon again is to move out of state.

    Simply forming an LLC in another state apparently won’t work and will only get you in trouble with the BOE.

    One thing you can ALL do is to write to the people in charge of your district letting them know how this bill has hurt your business. With enough people speaking out against this bill, there could be a good chance this bill will be overturned.

  • chris julian

    First up, Amazon has only to do one thing in order too allow it accept CA affiliates again and that is to start charging sales tax in CA and remitting to the Franchise Tax Board (people seem to forget that ecommerce sales are not exempt from sales tax — if the retailer does not remit the sales tax, the consumer is SUPPOSED to remit them). Amzn has dodged this bullet for years and I for one am glad that CA and other states are doing the right thing by closing the sales tax loophole. This episode and every episode where companies dodge their tax obligations only serve to drive me away from them. Until Amazon sucks it up and behaves like a responsible company, I think Californians should boycott them. I am a former Amzn shopper and I can live quite happily without them.

    Moreover, there are a few big sellers who still accept CA affiliates including Buy.com (comparable selection and prices to Amazon in most categories), eBay (generally strong but not always good on long tail), Walmart (if you can stomach it — limited selection too).

    Good on you, Jerry Brown!

  • http://www.whysoblu.com Gerard Iribe

    Great stuff, Pat!

  • http://reviews.davidleetong.com David Tong
  • http://internetbusinesstactics.com/the-nexus-amazon-tax-solution/ Nexus Petition

    Some possible good news…

    http://performancemarketingassociation.com/amazon-files-for-referendum-in-california-taking-the-issue-to-the-voters

    I’m not sure when or if this petition will start but when/if it does, we’ll need 500,000 signatures to immediately block the Nexus bill.

  • http://affiliates.allposters.com Jermaine

    It’s unfortunate that these companies have dropped California affiliates, especially since this state has such a large market and numerous opportunities. But as the blog post states, there are alternatives for former spurned affiliates in this state. Art.com and AllPosters.com both have affiliate programs. With over 1 million art prints and posters in hundreds of categories, I’m certain that you can find related merchandise to promote. Both websites are owned by the same company, which is based in California, so any CA affiliates searching for alternatives are welcome to join.

    And thanks again Pat for permission! I wish all of your readers and fans good luck.

  • http://www.mortgageloanshop.net Bill

    This will be overturned as it is unconsitutional. If not, imagine what it will do to the smaller tangible selling item sites and affiliates. CA needs to accept a 1 to 2% sales tax on internet sales vs 8.25% and repeal that Prop 13. That repeal is imminent as the population gets older

  • Christina

    I live in Illinois, so I’ve never had the opportunity to be an Amazon affiliate. I’m originally from the Seattle area and I moved to get away from the rain, so that’s not an option :). However, I’m hoping that EVERY state carrying this type of law will repeal it – it isn’t good for small business/entrepreneurs or our economy. I think I’ll move to Missouri :). One hand giveth and the other taketh away….

  • http://www.keithjamesdesigns.com Keith James

    These are just terrible laws. They don’t hurt Amazon, they hurt those trying to make a living. I know at least one person who is actually moving from California not just because of this, but it was the straw that broke the camel’s back.

  • http://www.tonerboss.com/Articles.asp?ID=288 Raymund@TonerBoss Coupons

    Things like these are shaking the stability of only businesses affecting thousands of bloggers and online marketers. Bloggers just want to earn money online, why can’t the government gives that freedom.

  • http://www.meetthemrs.com Tami

    It really is disgusting that our government, which is supposed to be by the people and for the people, get these bone head lifelong politicians who lose sight of what it is like to be a little guy and ruin attempts circulate money in the economy that will ultimately help the government as well as everyone else. Greed is good if you are a grifter but it is death to your constituants if you are a politician.

  • http://www.startasl.com Michelle

    I just wanted to stop in real quick and share what I did to “get around” being dropped from Amazon.

    I started using Skimlinks (http://www.skimlinks.com). They are based in the UK, so laws in the states can’t touch them.

    What Skimlinks does is convert product links on your site (including current Amazon affiliate links when conversion is enabled) to go through Skimlinks. So, Skimlinks would pay you and does take a cut, but it will still allow you to promote Amazon products and get paid for it. And since Skimlinks converts the links automatically, all you have to do is add their code to your site. You don’t have to change the Amazon links at all.

    This saved me a lot of time and let me still get some income from my links. I may even stick with them for the long haul since it saves time creating any affiliate links…

    Blessings,

    Michelle Jay

  • Curtis Martin

    My amazon pages all went down when yahoo.com pulled the plug on geocities. I was just gearing up to start a blog on wordpress.com when I got this news. Too bad for amazon, not that I make any big splash, but I switched over to Powells, Barnes & Noble and Rodale through linksys.

  • Austin
  • http://alphaefficiency.com Bojan

    This will lead to exodus of web based companies to states like Delawere or offshore contries.

    It will only hurt California in the long run

  • http://alphaefficiency.com Bojan

    I meant those companies that rely on Amazon associates program as their main source of income

  • http://www.noisebuffet.com Ben Long

    Any word on the outcome of all this? One of my websites has over a million monthy visitors and would love to try some affiliate sales. I’m based in CO and have no idea where to start with Amazon. I hear they are very bad about sharing!

  • GIA

    I think people need to make a bigger noise over this. We live in Washington state (for 3 years now) and told Amazon we had moved from Calif to Washington state, when we heard this news. Since July we only received one last check and no more even though we’ve maintained our site. We can see that we’ve made made Amazon thousands of dollars monthly by running reports. NOw, we’ve written them again and have gotten back a non sensical response that doesn’t even address the fact that we’ve moved; basically saying they don’t owe us anything.

    They are frankly IMO playing dumb and may be illegally holding onto affiliates fees because those affiliates (like us) are being made to “re-enter” a new contract in order to be recognized – now months later. While I understand Amazon’s right to do business with whom they choose, it’s hypocritical of them to say that states like California are doing harm to the ‘little affiliate’ meanwhile they play dumb about what they owe the same affiliates they’ve kept in limbo since their decision to pull out of Calif.

    We are legitimate affiliates and did our diligence in informing them that we had moved and they have not done theirs in recognizing us as their AFFiLIATE.

  • http://www.LimitlessMindset.com Jonathan Roseland

    I think I may have a pretty simple work around to this serious problem. Form a limited partnership corporation with a friend you trust in a state where Amazon affiliates are allowed. Use your friend’s address for the business. You would want to structure your business partnership so that your friend had zero voting rights actual operations of the company but pay them 10%-15% of the net revenues or whatever so it’s worth their while to deposit amazon checks off at the bank.

    Obviously, it would be important to follow the best practices of doing business with friends; sign contractual agreement, explain partnership responsibilities upfront, etc.

    As far as I know it’s not illegal to form a corporation in a state where you do not reside. It might make your taxes a little more complicated at the end of the year but if Amazons affiliate program is part of your business it should be well worth it. Can anyone (hopefully a lawyer or accountant) see any problem with this?

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  • http://www.spiritofthescripture.com Josh

    Thanks for this info. I live in North Carolina and this is truly depressing. It’s good to know that there are other valid programs that can still be used. Again, thanks for this.

  • http://www.webtrafficexchange.com Scott Seong

    Amazon has to be stopped, and otherwise all other retailers will go out of business. They have monopoly because they don’t have to collect tax in most states, making it cheaper than anyone else. I personally would like to shop at Amazon since they have pretty decent price, hassle free return, and mostly free shipping (over $25). How can you beat that?

    I had to dissolve my online retail business not because I had to collect tax, but I couldn’t stay as competitive as Amazon and many large online retailers. I was Amazon affiliate, but then I am terminated when Illinois passed Amazon Tax law.

  • http://www.kylemarvin.com Kyle Marvin

    There actually is a workaround for ‘banned states’ folks to be able to promote products through Amazon. It’s actually pretty sweet, because you get 6.5% rather than the low-tier rate most people get. I wrote a blog explaining the ‘workaround’. I think it’s a helpful source for you guys, but feel free to remove the link if you find it inappropriate: http://www.kylemarvin.com/how-to-become-an-amazon-affiliate-in-colorado-california-or-illinois