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Well, it appears that the “powers that be” in the great State of Georgia have hopped on the band wagon and passed their version of an Affiliate Nexus Tax law (nicknamed the ‘Amazon Tax’). What started out as H.B. 983 became a great big “hodge-podge” of various new and previously attempted tax laws all rolled into what is now known as H.B. 386.
This part of the bill is called the Sales Tax Fairness Provision – and it, along with the rest of the bill passed within only 30 hours of being introduced. Kinda scary. No, REALLY scary.
What Is an Affiliate Nexus Tax?
First off, let’s cover what “nexus” means in relation to taxes. From this site:
“Nexus means a business entity has established a direct or representational presence within a particular state or jurisdiction. This presence gives the state the right to require a company to pay or collect and remit certain taxes.”
Basically, that means that even tho an online merchant (such as Amazon) doesn’t REALLY have a retail presence in the State of Georgia, the law-makers are creating a retail “presence” for them via the affiliates that have a Georgia address and advertise Amazon’s products.
Why in the world does that matter?
As we are all aware, online shopping is BIG and there is a lot of money out there being made and the states are not getting their cut (ie, getting the tax percentages that a consumer would have to pay if they bought said product from an actual brick and mortar store in the state).
So, yep, naturally, the state wants its share of that money.
Now, the other side of this is the Big Brand Business. Think Walmart, Target, Home Depot and other big brands that have a real physical retail presence in your state (ie, you can physically GO to their store), but they also have an online presence as well.
These big brands DO have to collect and pay sales tax to those states – and they aren’t happy that companies like Amazon do NOT have to.
So, in one corner, we have the state… in the other corner, we have Big Brand Business…in the other corner we have online merchants like Amazon…in the other corner we have locally-based brick and mortar businesses without any type of online presence.
And they are all brawling it out over what is “fair”.
Here’s why it matters to all parties above.
Let’s say Local Sam has a local store and he sells a popular widget for $100. A consumer comes into his store and pays the $100 plus the tax of 7%. Sam collects $107 for the sale and sends the $7 in tax off to the state.
Now, Online Jim has an online store and he also sells that popular widget for $100. However, since Jim doesn’t have a physical retail presence in the customers state, he does NOT have to collect sales tax – and the state misses out on that money (and they WANT that money).
Also to consider, Online Jim could actually sell that widget for $7 LESS than Local Sam can and still make a good profit.
Local Sam doesn’t think this is fair and thinks it gives Online Jim an unfair advantage.
The State doesn’t like this either, because they naturally want that tax revenue. However, based on federal law, there is nothing the state can do because Online Jim does not have a physical retail presence in their state so they can’t force Jim to collect and pass on sales tax to their state.
Now, where it gets interesting is over in the “instigator” corner – those Big Brand Businesses that have both physical retail and online presence. They DO have to collect sales tax and pay it to the state – and they can’t stand the fact that someone like Online Jim does NOT have to do this which they feel gives Online Jim an unfair advantage.
I feel that the Big Brand Businesses got in the ear of the state letting them know how much tax money they were missing out on… and they got in the ear of Local Sam business owners telling them how unfair it was that online merchants were ruining their business by cutting into their profits…. and everyone got together and said – “That’s Not Fair!!”.
Enter the “nexus” part of this situation.
In the middle of the ring – the one who will actually be hurt in this situation – is the state-located affiliate.
The new Nexus Law is claiming that since the online merchant has affiliates in their state, that those affiliates indicate a retail “presence” in said state – therefor, the online merchant MUST charge and remit sales tax for those sales generated BY an affiliate who has an address in this state and sold TO a consumer in this state.
In short, an online sale to a Georgia consumer that originated through a Georgia-based affiliate’s advertising links must be taxed.
Got all that?
If you don’t get it, don’t sweat it. It’s really a mess.
I’m not sure how my Amazon advertising links constitute a retail presence for Amazon. I don’t stock products for Amazon, no one can come to my home office and buy Amazon products from me, I don’t take Amazon returns, or even take any type of customer service phone calls.
I’m an advertiser for Amazon – not a physical retail presence.
Heck, if you actually read the wording in Georgia’s H.B. 386, it excludes me (and other Amazon affiliates) from this tax.
Read the full bill here, scroll almost all the way to the end to line 1784, 1785 (i), and then line 1788 (III) – in short, (my paraphrase) applies UNLESS my only activity is advertising by the Internet.
So the wording of Georgia’s own bill says I’m NOT – but they’re claiming I am? Yes, I am confused too.
But let’s move on.
The solution they (Georgia) has to collect sales tax on the Georgia consumers online purchases via Georgia affiliates links is flawed… really, really flawed.
Here’s why it’s flawed
In the case of my state, Georgia, it looks as if this new Nexus Tax Law will be going into effect (don’t quote me, but I THINK sometime in October. I’ve read many dates, but nothing concrete. It’s become oddly quiet about it so I think something else is going on – perhaps their own wording has gotten in their way?).
So, do you think that means Amazon will start collecting sales tax on customers who also live in Georgia who buy through my links?
First off, what a MESS that would be. Can you even imagine what an accounting nightmare that would become? Secondly, Amazon doesn’t really need ME – so, like they have done with other states with these Nexus Laws, they will dump me and deactivate my Amazon Affiliate account.
In that case – NO ONE WINS.
In the middle of that brawl, the ones hurt the most, will be the Georgia Affiliates – like me and who knows how many other thousands of other Georgia Amazon Associates.
How much do Georgia affiliates make? I’ve read a number of $483 million dollars generated by Georgia affiliates – and TAXED by the State of Georgia.
That’s less income tax money for Georgia – and that much less money circulating and being spent in the State of Georgia.
So the “solution” looks more like this:
Oh, but I can STILL buy tax-free via Amazon so I can save money and not have to pay tax at my local retailers when I purchase. Just a fun fact I thought I’d throw in there.
Now, if *I* can see that, why can’t the fine people that make our State laws see that? It’s not like Georgia is the first state in the United States to do this so there is precedent here. Amazon didn’t comply with these other states – instead, they FIRED their affiliates in those states
I was reading this article about this Bill over at PeachPundit.com. In the article, the author spoke of how positive the passing of this bill is for the State of Georgia. I was about to comment until I read exactly what I wanted to say already said in the comments by Chuck Shiflett from BackRoomReport.com.
“On the Internet tax portion of the bill… there are over 100,000 Internet retailers in the US. About 2,000 of them have affiliate programs. About 500 of that 2,000 already have a physical presence in GA and are already collecting sales tax. Another 500 out of the 2,000 have no affiliates in GA and are not subject to this law change. Bottom line? Only 1%… 1,000 out of 100,000 Internet merchants will be covered under this law change and many of those will fire their GA based affiliates and still NOT have to collect GA sales tax.
So brick & mortar stores in GA will still have the unlevel playing field they are complaining about… GA and her local governments will not receive the millions in additional revenue they want… 6,000 GA based affiliates will be forced to shut down or move to another state… and the state will lose the incomes taxes it collects on the $483 million annually that GA based affiliates earn… and that $483 million will no longer be spent in GA stores costing the state and local governments millions in lost sales tax revenues. Three states that passed similar legislation have already backtracked and rescinded the bills.”
Couldn’t have said it better myself – thanks, Chuck!
In fact, Chuck has a great article on his site that talks about this – and also goes into the State of Illinois after they passed an “Amazon Tax” like this (hint: the State of Illinois LOST money due to having affiliates in their state fired by Amazon).
I am not a politician, nor a tax attorney, nor anything that makes me qualified to really speak about this. I also respect those that put themselves out there each day to try and make our State better as a whole. Lord knows, *I* sure don’t want that job.
But this – it’s not the solution.
Sure, it looks pretty and it sure SOUNDS pretty when they think of alllllll that money they could be getting from taxed online purchases, but this is not the way to do it.
It won’t work.
This “solution” does not help anyone – but it DOES hurt their own residents that earn a living in this state by being an affiliate advertiser online. In turn, that hurts the state. We make less, so we pay less income tax and spend less. Heck, for some affiliates this could be major and they could end up on financial assistance from the state.
Will it hurt Amazon?
Uh, no – not even a little bit. Sure, some affiliates might bust it to remove their Amazon links and use some other type of monetization, but many won’t and all those abandoned affiliate links will STILL be out on the web, STILL generating sales, but NOT crediting the affiliate (meaning Amazon actually makes MORE money off of work and promotion they didn’t even do).
Awesome, huh? Talk about “not fair”.
SHOULD the states be able to get some type of tax revenue from online sales?
Sure, maybe, I guess – haven’t really thought that part all the way through. Regardless, they will eventually figure out how to get their cut no matter what I think.
However, in my humble opinion, this can only be achieved and “fair” if done on a national/federal level where ALL online retailers have to collect the same tax on ALL states – and thus, the playing field would be level…and uh, dare I say it… “fair”.
There’s no way online merchants can comply with FIFTY different laws and regulations regarding collecting sales tax from each state – we need ONE solution.
So Now What?
As I said, I’ve read HB 386 did pass into law. One provision of that House Bill is bringing back ‘Tax Free Weekends’ on clothes, school supplies, etc that we used to have until the economy got really bad and the State couldn’t afford to do that. We just had a ‘tax free weekend’ so that part of the bill has actually happened.
This leads me to believe that it won’t be long before I get the dreaded termination letter from Amazon and will no longer be able to advertise Amazon’s products for commission as an affiliate with a Georgia address.
I’m ready for it. I have my immediate solution and long-term solution ready to put into action. I understand that it is the Georgia lawmakers job to watch the bottom line of the State…but it is MY job to watch MY bottom line – and that is exactly what I will do.
My solutions won’t help Georgia, but did they really care about ME when creating this law? On the outside, in a pretty little bow, it sure sounds as if this law will help me, a Georgia resident. But the reality is – this law HURTS me – and doesn’t help the state or my local mom n’ pop business owners either.
As a Georgia voter tho, I can say this – I am going to read through the very few names that voted AGAINST this House Bill…and they will be the ones I will support.
As for my planned solutions, I’ll talk about that in another post.
So, what do you think? Questions – Comments? Leave down in the comments area, but please remember, play nice =)
Otherwise, here are links to further reading and places I accumulated my info from:
Georgia Amazon Affiliates Get Ready To Lose Money (from MarketingWithRick.com – ironically, he lives very, very close to me)