By Durk Price

Many of the merchants we work with have been asking me about the Affiliate Nexus Tax. I usually point them to the Performance Marketing Association website  to find out more about this issue. The PMA has done a great job of fighting these proposed bills and I have been a proud member since the trade association started in 2008.

Besides encouraging my merchants to join the PMA,  the number one piece of advice I can offer is to get educated on the issues.

For those of you not familiar…the Affiliate Nexus Tax (it’s also sometimes called the Amazon Tax) is the name given to laws been proposed in various states that seek to use affiliates as a way to establish nexus (a physical presence) in a state in order to force out-of-state merchants to collect sales tax on purchases from consumers in those states. What is happening as a result is that merchants, such as Amazon and Overstock and many others, are instead terminating affiliates in states that enact these laws rather than collect and remit the tax.  That means that tens of thousands of affiliates are losing their income if these laws pass. These bills are a serious threat to the online marketing industry and affiliates are unfortunately caught in the cross fire.

To stay on top of the issues, I would also suggest setting up Google  Alerts for existing bills (if you know the bill numbers) or just having general Google Alerts such as  “affiliate nexus tax”, “nexus tax,” and  “Amazon tax” and monitor those alerts on a daily basis.

I also encourage anyone responsible for the performance marketing or affiliate marketing channels at their company inform the top executives about the issue so the right decisions for their company can be made. The decisions for each business will vary according their specific situation and the state they are dealing with.  Consulting the company’s legal team and tax lawyers are also imperative.

For a merchant, the decision to keep or terminate affiliate programs in states where the affiliate nexus tax is being considered, is complicated and involves many aspects. The amount of revenue driven by the affiliate channel in a given state could determine if the merchant terminates or opts to collect sales tax instead.

I firmly believe that affiliate marketing is still the best direct response advertising channel for measuring ROI on advertising campaigns. I would encourage the merchants we work with not to get frustrated with the hype surrounding the affiliate nexus tax, and give up on the channel entirely. It is a completely manageable situation, if approached correctly.

But if merchants do have to terminate affiliates, there are ways to do it that will have less impact on them and the merchant’s possible future relationship with these affiliates.

Be open and honest with affiliates. Communicate with them respectfully about these issues. Affiliates understand this is an ROI decision for merchants. They understand they shouldn’t establish nexus for merchants and that the proposed laws are misguided. Affiliates aren’t holding grudges against merchants. But they need to plan ahead, so merchants that are considering terminating affiliates if a law is passed in a certain state, need to let those affiliates know in advance.

Affiliates have been value partners in your marketing efforts. Sending an email to them is fine, but terminating them without notice is not. This engenders bad feelings and almost assures that these affiliates will not want to work with a merchant in the future. Affiliates need time to swap out links and ready their own business for the negative implications associated with these laws.

This is an unfortunate situation for everyone associated with affiliate marketing. Affiliates have become the collateral damage in this battle and the best way to handle things is with respect, courtesy and a vigilance to stop such laws from being passed.