After having my sites offline for over a week, I’m happy to return and share some reasonably good news that pertains to the Affiliate Nexus Tax.

Thanks to Amazon and other retailers in California, new legislation was passed that repeals the tax temporarily.

The retailers must lobby for a federal tax solution to be implemented by July 2012, or the Nexus tax will resume in September 2012.

So… like I said, it’s reasonably good news.

You can get your Amazon links back out there for the upcoming holidays, OR go for the Skimlinks alternative, which lets you promote Amazon through a 3rd-party.

To read more about the current situation in California, please read California Legislature Passes Legislation: 1 Year Reprieve of Affiliate Nexus Tax on the PMA site.

Shortly after California governor Jerry Brown signed the budget which includes the affiliate nexus tax, Amazon affiliates in that state received the following email from Amazon:

Hello,
For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers – including but not limited to those referred by California-based marketing affiliates like you – even if those retailers have no physical presence in the state.

We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.

As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective. We will send a follow-up notice to you confirming the termination date if the California law is enacted. In the event that the California law does not become effective before September 30, 2011, we withdraw this notice. As of the termination date, California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned on or before the termination date will be processed and paid in full in accordance with the regular payment schedule.

You are receiving this email because our records indicate that you are a resident of California. If you are not currently a resident of California, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state in the near future please contact us for reinstatement into the Amazon Associates Program.

To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect their ability to purchase from Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com.

We have enjoyed working with you and other California-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to California residents. We are also working on alternative ways to help California residents monetize their websites and we will be sure to contact you when these become available.

Regards,

The Amazon Associates Team

Affiliates in the following states are now affected by the affiliate nexus tax:

1. California
2. Colorado
3. Illinois
4. North Carolina
5. Rhode Island
6. Connecticut

The Performance Marketing Association advises California publishers and out-of-state advertisers to consult a tax or legal professional regarding this issue.

Are you a California publisher? Thoughts? Comments? What are your plans?

Comments, questions or suggestions? Please leave a comment below!

Cheers,

Now that we’re 2 weeks past tax day in Canada (April 30th), I thought I’d write about an issue that directly affects Canadian affiliates and online merchants. So, be warned – for the purposes of this post the spelling may seem a little weird, like ‘cheque’ and ‘humour’ and I might even have to throw in the occassional ‘eh’, eh?.

About GST

GST is the Goods & Services tax that we Canadians pay on almost everything we buy — with some strange exceptions, i.e. groceries that are not intended for immediate consumption. If you buy 5 buns, you pay GST. If you buy 6 or more, you don’t.

The current GST rate is 5%, down from 7% a few years ago.

Do You Make More than $30,000 Per Year?

Most persons and organizations engaged in commercial activities in Canada who have annual worldwide, taxable sales of more than $30,000 must register for and collect the Goods and Services Tax (GST).

I therefore registered for GST a number of years ago, but because I was doing business online as an affiliate marketer, I did not collect GST. I expected that my Canadian merchants would collect the GST on applicable sales.

I did however, file regular returns to claim rebates for GST paid on items and supplies that I purchased for my business. The refunds were typically in the range of $100 – 200 every 3 months.

The ‘Mini’ GST Audit

I’m fairly fastidious about dotting all the i’s and crossing all those t’s when it comes to dealing with Revenue Canada, so imagine my surprise therefore, whe, in the earlier part of this year, I received notice that my business was to undergo a ‘mini’ GST audit.

OK, I collected and submitted the requested paperwork and fielded a few phone calls from the local Revenue Canada office in response to the submission.

“What exactly are you doing online?” and after explaining my income from affiliate marketing as commissions earnings, the next questions were “Who are your Canadian merchants?” and “How much did you earn in commissions from them?”.

So, I told them and then sumbitted more paperwork with the commissions from Canadian merchant separated out.

Then came the bad news – I OWED GST on those earnings!

Huh? Say what? My guess was that 95% of those products were sold to customers outside of Canada, but that apparently didn’t matter. What DID matter was that I was providing a ‘service’ to my Canadian merchants by placing advertising links on my site(s). Those Canadian merchants were therefore responsible to pay me GST on my commissions earned.

It didn’t matter that they hadn’t paid, I still owed the money – THOUSANDS of dollars in back taxes.

Aargh.

My first thought was to dump my Canadian merchants, but I quickly realized what a stupid response THAT would be, considering I was making good coin promoting their products.

Recouping GST Owed by Canadian Merchants

So… a better idea came to mind next and I approached those merchants, explained the issue and requested the GST owing.

The responses were varied.

Ken Evoy’s company, SiteSell, was by far the easiest to deal with and the quickest to respond. The paid the outstanding amount almost immediately and then made arrangements to include a separate cheque every month for GST owed.

IWantU was a completely different story. It took more than a month simply to get someone to reply to my tickets (which generally resolved to a “Page not Found”) to the point where I finally sent a message asking if they were still in business. Their initial responses to my detailed explanation and request was to feign ignorance. When pressed, Eric Frangoe finally replied, stating:

Sorry for so late reply. It took me some time to investigate your issue. And actually according to the Terms and Conditions of the Agreement, that you agreed when signing up for our service, we don’t have to pay those taxes. We only pay you the money for traffic you brought. If there are some taxes that you have to pay, we don’t take responsibility for that. Sorry.

Sorry, indeed.

Especially considering the situation is completely revenue-neutral for Canadian merchants.

Essentially, the pay their affiliates GST for services rendered and then claim that as a rebate on their own tax filings.

In the IWantU case, I was totally on the hook for THOUSANDS of dollars — so no problem deciding to remove their advertising from my sites — nd I strongly suggest that all Canadian affiliates do likewise.

I did find one thing humourous about dealing with IWantU. I pointed Eric to a section WITHIN the IWantU affiliate agreement that read:

9. Pay Your Taxes, and Over-comply with Government Regulations. Adult businesses are under a microscope. …As an adult webmaster, you cannot get away with what other businesses get away with. You will be held to a higher standard.

Eric’s reply?

Can you please give me url where did you find that 9th point. Is that some Canadian legislation? If it’s so please provide me with url so that I can check it. It seems that I can’t find it on internet.

Duh.

Definitely better off NOT working with these bad actors.

Canadian Tire Deals with the Issue Upfront

Since going through this process, I’ve done a little research into how other Canadian merchants handle GST on affiliate commissions and it would seem that CanadianTire is one of the few that actually addresses the issue in their affiliate agreement. Here is the text from the Canadian Tire Affiliate FAQ:

We request a GST number for tax purposes only. It is the responsibility of every Canadian affiliate website to record the GST amount they receive from canadiantire.ca. In addition to the commission you will be earning canadiantire.ca pays affiliates GST for the services they provide. The GST amount is not included in the commission rate, instead it is added to the monthly commissions earned by affiliates.

Bravo! Well done!

Anyway, I hope that helps out the Canadian affiliates who read NPT.

NOTE: When I figure out how the HST is going to affect our lives, I’ll let you know.

Hot on the heels of announcing that they would join the lineup of Internet merchants dumping their affiliates in California, Hawaii, North Carolina and Rhode Island – states that plan to tax Internet referals – Overstock reversed its decision to drop its California-based affiliate advertisers following an assurance from Governor Arnold Schwarzenegger’s Office that his rejection of the affiliate nexus tax bill will stand.

Overstock.com’s Chairman and CEO, Patrick Byrne responded “I compliment Governor Schwarzenegger on getting it right” and assured the Governor that it would turn back on the advertising feeds from its California-based affiliate advertisers.

I can only hope that Hawaii, North Carolina and Rhode Island will see the negative impact of their anti-consumer, anti-business legislation and choose not to sign it into law – especially in a down economy!

Have you had your affiliate feed turned off? Please share your story…

Friday’s Kolimbo Merchant spotlight included the following new merchant notice:

We are offering you an opportunity to partner with March of Dimes for the health of the future, in return March of Dimes is willing to acknowledge you as an affiliate partner, annual acknowledgements of donation that you can use as you see fit.

There ya go… but how do you decide? A nickel? Maybe 25 cents a click?

Hmmmm…..

If you are unfamiliar with the March of Dimes, here is their mission statement:

The mission of March of Dimes is to improve the health of babies by preventing birth defects, premature birth, and infant mortality. We carry out this mission through research, community services, education and advocacy to save babies’ lives. March of Dimes researchers, volunteers, educators, outreach workers and advocates work together to give all babies a fighting chance against the threats to their health: prematurity, birth defects, low birth weight.

Great cause.

However, animal lovers may wish to note that there are a number of worthwhile charities that do birth defect research WITHOUT animal testing, eg. Easter Seals , Birth Defect Research for Children and the Spina Bifida Association of America.

Just thought you’d like to know.

Cheers,
Ros