Ad Networks Opinions

Why the Nexus Affiliate Tax is No Friend to Brick and Mortar Shops

Posted by Daryl Colwell on September 1st, 2011 at 6:46 am

The online sales tax political roadshow has been touring the country for months with proponents of the Affiliate Nexus Tax calling it a benefit to brick and mortar stores. For years, small, medium and even large scale stores with a mainly offline presence have bemoaned the need for an online sales tax. They allege this tax will level the playing field with online sellers who market products to state residents through affiliates without paying a sales tax.  In actuality, the tax will slash the affiliate workforce in an already dismal economy. Not only that, it will limit the potential of brick and mortar shops to extend their online customer acquisition reach and effectively sever vendor relationships with many online sellers before they have a chance to get started.

Earlier this summer, Amazon broke up with ten thousand small businesses in California adamantly refusing to force customers to pay a state sales tax on online purchases. The Nexus law that passed in the state requires that sellers like Amazon collect a 7.25% sales tax from customers. Amazon’s bold move has dire short-term financial ramifications for thousands of affiliates in the state but could open the door to common-sense discussions on why the bill is a jobs and revenue killer. Here are some immediate talking points:

  • A California Nightmare on Such a Summer’s Day – If there was ever a state that needed new sources of revenue it’s California. Constantly teetering on the brink of bankruptcy, California is choosing to put more people out of work while making it harder for consumers to get the best possible price on products.
  • Brick and Mortars Beware – Mom and Pop shops have long struggled against the big boys but they have picked the wrong fight with online marketers. Instead of pushing to implement taxes they should be pushing to implement performance-based services like affiliate marketing, search and display advertising into their business model. These channels will help build complementary online presences that will drive new sales.
  • Online Taxes Will Send Sellers On the Move – States that adopt the Affiliate Nexus Tax might end up contributing to the economy after all, albeit, the economies of other states. Online sellers will likely relocate to non-tax states. How is it good for the collective economy if some states thrive while others are left to languish?

Recently, the debate over the Affiliate Nexus Tax has focused on whether the law is constitutional. This should not be the issue online retailers and affiliates go to war on. Bottom line, it’s about the bottom line. A report by Forrester estimates that by 2014, the affiliate industry will be a $4 billion marketplace. Affiliate marketing has matured recognizing the need to incorporate cross-channel programs designed to boost performance and desired results. Hampering its profitability and evolution with nonsense tax legislation will not help brick and mortar businesses compete with online sellers. The only “nexus” it will create is one of drastically reduced growth.

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