You may have heard about the recent commotion when Amazon.com and other affiliate networks had to drop all affiliates from certain states. If you lived in North Carolina, Hawaii, or Rhode Island, you might have received a notification from Amazon that you could no longer be their affiliate.
For some people this may not seem like a big deal, but for some it is devastating. Many people earn a living, or a large portion of it, from Amazon commissions (by selling Amazon products on their websites, as affiliates). Amazon has one of the best, easiest to implement, and (for certain types of websites, from what I can see) most remunerative affiliate programs around. And it is also probably the easiest affiliate marketing strategy for a beginner to implement on their first website.
From my viewpoint, Amazon is a highly affiliate-friendly company and they go to lengths to make it easy for people to sell their products. So why would Amazon fire all their affiliates from certain states?
Well, in a nutshell, it goes like this. Purchases people make through Amazon have generally been free from sales tax, as long as Amazon itself (as a company) did not have a physical presence in the state which the purchase is being made from. Sales taxes are only collected when both the buyer and the seller are from the same state (assuming that state does levy sales tax).
As Amazon has grown, more and more sales have taken place online through Amazon, and less through offline businesses such as the more traditional mom-and-pop book stores. Therefore, the states have begun to lose some of their sales tax revenue. Due to the current financial scene, some states feel under stress to recover some of their missing revenue. A couple of states have passed laws which would require that Amazon consider itself to have a “presence” in a particular state if it has affiliates within that state. North Carolina is one such state.
Therefore, if I live in North Carolina and I purchase a book from Amazon, I would have to pay a sales tax as long as Amazon has any affiliates in North Carolina.
Amazon’s solution? Get rid of all the affiliates in North Carolina! And any other state which implements such a law. The sales tax creates too many problems for them – not just in terms of competitive pricing, but in terms of extra administration expenses and hassle. Plus, they probably don’t want other states to consider that this is a great idea and follow suit.
Since some people earn a living through Amazon, or majorly through Amazon, this can be devastating to whole families who still need to put food on the table.
Of course there are debates and ongoing lawsuits regarding the legality, constitutionality, or logic of such a strategy. Needless to say, the states that have implemented this would not have not gained any extra revenue but have instead lost revenue due to having less income taxes to collect from the affiliates which have been dropped.
But regardless of the rightness or wrongness of this approach, what should you do if this affects you?
A blog post I read today gives an excellent idea on how to get around this and not lose your affiliate relationship with Amazon (and thus your income). I am not an attorney and can’t give you any official advice, but this is something you may want to look into.
This blogger suggests that you set up a corporation in a business-friendly state such as Delaware, and have a representative in that state. In this way you can continue to operate as an affiliate of Amazon, through your Delaware-based company, and neither you nor Amazon would be affected by the new tax law.
Why Delaware? He explains it more on his post but the point is that Delaware makes a lot of money by incorporating businesses and is a very business-friendly state – so is unlikely to adopt this tax at any point in the future.
To read more, please see his blog post at Does Amazon Hate Affiliates?
There is a lot more that could be said on this issue. This is also another reminder of why its best to have multiple streams of income – if something unexpected happens with one of them, you will the others to back you up. Affiliate marketing and working online opens up a world of possibilities which we would never have imagined in the offline world, but like any independent business venture, it comes with a few risks as well. Being aware of them and prepared for them is the best strategy.
If you know anything more on this subject or have any further suggestions for those who are affected by this, please do leave a comment with any feedback you have.
As a final note – I recommend subscribing to the blog of any company or affiliate network that you earn a consistent revenue from. This will help you stay “in the loop” at least from the viewpoint of the company itself. It also can help you learn new strategies and techniques which can increase your revenue. If you are an Amazon affiliate you can subscribe to the Official Amazon Associates Blog. As another example, if you earn money through the Google Adsense Program, you can subscribe to Google’s Inside Adsense as well as Adsense for Feeds. Other networks have similar blogs as well, to help keep their affiliates informed and succeeding.