Tricia Meyer

Affiliate Marketer, Blogger, and Consultant

New Indiana Nexus Tax Law Is Bad All Around

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Back in April with very little fanfare (or public comment), Indiana passed a law requiring out of state merchants to start collecting sales tax on online purchases made by Hoosiers. Although affiliate nexus legislation had been proposed in the past by Democrats, Republican State Senator Luke Kenley always made sure it was shut down. Now Kenley was one of the driving forces behind the new economic nexus tax. I’ll break down what it entails and why it is a bad idea for Indiana right now.

The Law

House Bill 1129 provides that an out of state merchant must collect sales tax on Internet purchases if the merchant either makes 200 or more separate transactions in Indiana in a year or their gross revenue from Indiana sales exceeds $100,000 in a year. The law took effect July 1, 2017.

The Rationale Behind the Law

State legislators believe that Indiana is losing out on too much tax revenue because people do not self report the taxes that they owe and it isn’t fair to in-state merchants who do have to collect the tax. Kenley stated that local businesses were at a “disadvantage” having to collect the taxes. The possible tax revenue that we are losing is often cited by both parties as being between $77 and $195 million based on studies in 2012. (Indy Star article)

The Rationale is Wrong

First of all, local merchants are not at any real disadvantage based on the tax issue. The Performance Marketing Association recently surveyed over 750 online shoppers. Only 1% said that one of the top reasons that they shop online is to avoid taxes. That means that at most, local merchants are missing out on 1% of their sales based on the sales tax issue. Conversely, they receive a lot of local benefits such as police and fire protection, roads, etc. I don’t want to see the mom and pop store go out of business, but if they do, it won’t be because they have to collect taxes on purchases.

Second, those numbers of projected tax revenue loss would be MUCH less than the 2012 projections. Amazon started collecting taxes in Indiana as of January 1, 2014. Yes, online shopping numbers have gone up since the study in 2012. However, much of that is from companies with physical locations in Indiana who are already collecting taxes (Best Buy, Walmart, etc). In fact, looking at Slice Intelligence’s numbers for the 2016 holiday season, at least 9 of the top 10 merchants for online spending were collecting taxes–for a total of over 60% of shopping. Imagine what those numbers look like when you throw in all of the other brick and mortars plus the merchants who were already voluntarily collecting.

We Have a Lot to Lose Now

The legislators know Indiana is in for a fight. South Dakota is already undertaking substantial judicial action to enforce their very similar law. In fact, our legislators specifically said that they anticipate the impending litigation. How much money will it cost taxpayers to defend this new law rather than waiting for the Supreme Court to take up the South Dakota case or for Congress to pass one of the several bills currently proposed that would end this whole thing? Attorneys will be the biggest beneficiary of this law for quite some time.

In addition to the money defending the law, the state is ALREADY losing income tax money as a result of passing it. Zulily sent out an email to all of the affiliates in the state saying that they are dropping them. Which other merchants will follow suit? The state just lost any income tax from affiliates in programs that drop any type of nexus state affiliates.

Taking that a step further, a business like mine (Sunshine Rewards) will now lose customers in general because I have lost a merchant like Zulily. So not only do I lose the Zulily revenue but I also lose all of the business of my members who want to shop through a website that works with Zulily. And for every dollar Sunshine Rewards loses, the State of Indiana loses the income tax on it. Multiply me across all of the affiliates in Indiana and we’ll see an immediate drop in tax revenue starting with our next quarterly filings.

Some of my biggest competitors have either moved out of the country or are owned by companies outside of the country–in many cases to avoid state issues like this. How is that good for Indiana or Americans in general?

Businesses came to Indiana after Illinois passed an affiliate nexus tax. Will those same businesses now make the decision to leave Indiana as a result of our law?

Right Motives, Wrong Execution

I understand that Indiana wants to capture more tax revenue (ironically it was the Republicans who passed this law despite always saying “no new taxes”). However, this law was passed without any real understanding of the potential implications for all of the affiliate marketers in the state. We were never given the chance to plead our case or even explain the ramifications. In trying to save the “little guy” small businesses on Main Street, they harmed the “little guy” small businesses run by work-at-home moms and dads, retirees, and other entrepreneurs. From a pure numbers standpoint, this law will cost Indiana a lot of money in the short-term with only the HOPE that it may make the state money in the long-term.

Surprises in Affiliate Marketing

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Surprises in Affiliate MarketingI went away for a two week vacation and came back to find some really interesting things in my inbox and in the networks. I think that the closure of the Google Affiliate Network has really shaken some things up in terms of merchants and affiliate networks (and in a good way). Most of the surprises were good ones! It’s going to make Affiliate Summit in Philadelphia fun because we have just a little bit of time between now and then to watch how everything plays out and then be able to gossip about it.

Here are a few of the things that made me go “hmmmmmm” this week:

  • Hilton all of a sudden popped up in Commission Junction. Up until now, we have had to rely on the Converseon tracking and the program has been HORRIBLE! In fact, we haven’t been paid since about August. Andrew Kardon promised some exciting new things now that he is cleaning up the program, and this is a good indication that they are serious about making the program better.
  • Pandora opened a program on Linkshare. I had been under the impression for years that they were never going to have an affiliate program because of their “brand concerns.” They have always been really picky even with their resellers. Combining this program with the Chamilia program could result in some cool new datafeed sites.
  • Oriental Trading Company announced that they are leaving GAN for Impact Radius. This is a HUGE win for Impact Radius. It actually poses some problems for ME because Oriental Trading Company is a big merchant for me and, honestly, we have not taken the time to integrate fully with Impact Radius yet because they just didn’t have any exclusive merchants that we really needed to integrate with. This is going to change that for us for sure.
  • Gymboree opened a program on ShareASale. I think this is a big win for ShareASale. My mom site visitors have been asking for Gymboree for years. I had come to doubt that we would see a program from them. This one started converted for me pretty much as soon as I posted it!
  • Joe Sousa is moving to Florida to join the Fanatics Affiliate Management team. I can’t say this is a HUGE surprise because I knew he was interviewing, but it was interesting nonetheless. I’ve known Joe a long time and think he is going to be a fantastic addition to the team. He has sports knowledge, affiliate program management experience, and an open mind when it comes to the Steelers. (Well, 2 out of 3 isn’t bad)
  • In the negative news department, a lot of GAN merchants still have not announced where they are going. For those of us who are solo or who have small staffs, we aren’t going to be able to change out hundreds of merchant links in just a month. Even though GAN is supposed to continue tracking for awhile, many of the notices we are getting are only giving us a week or so before the merchants completely close down their GAN program. This is definitely going to cause some chaos in July (and otherwise relatively slow month for affiliate marketers).
  • Also in the “bad surprise” category is news on the Performance Marketing Association’s Facebook page today that Ohio has introduced Affiliate Tax legislation and it is moving quickly. If you are an Ohio affiliate, you need to get the word out about this and get to work. I had not previously seen Ohio on any of the “watch lists” by the PMA and the fact that it happened so fast is scary for all of us.

So what else have I missed besides the normal affiliate marketing buzz? I used to think that June was a slow month for affiliate marketing, but not this year!

Edited: So right after I published this, I got a knock at the door from FedEx. My biggest affiliate marketing surprise this week was apparently that I was a winner in the ShareASale Spring Fling contest! Check it out! Thank you, ShareASale. 🙂

Shareasale Spring Fling Winner

Affiliate Impacting Legislation Before House Judiciary Committee

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US House Judiciary CommitteeThis morning I spent about 3 hours watching a House Judiciary Committee hearing on H.R. 3179, the Marketplace Equity Act. (I know, I’m both an affiliate and legal geek in so many ways.) Although the hearing got a good deal of coverage from the media, I was surprised to see so few affiliate marketers talking about the hearing. What is this legislation and why is it so important to Affiliate Marketing? I’m sure that the PMA will be writing something more in depth about all of this soon, but I wanted to get this information out today while people might be thinking about it.

What Is the Marketplace Equity Act?

H.R. 3179 is a bill in the U.S. House of Representatives that would allow each state to collect sales tax from out-of-state retailers when purchases are made by residents of the state. It’s goal is to “level the playing field” between brick-and-mortar and online retailers. A similar bill, S. 1832, the Marketplace Fairness Act, has already been introduced in the Senate.

Why Is this Important to Affiliate Marketing? [Read more…]

Affiliate Tax in Indiana Update

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While I was away at Affiliate Summit, the State of Indiana was making a pretty big deal that could have an impact on my business. Governor Mitch Daniels announced last week that Amazon and Indiana have reached an agreement whereby Amazon will begin collecting sales tax for purchases in Indiana starting in 2014. Although the issue does not directly impact affiliate marketers in the state, I see it as fairly good news. Unfortunately, a new affiliate tax bill has also now been written.

Why was the Amazon agreement good for affiliates? First of all, much of the argument in favor of taxing all online purchases in Indiana was based on Amazon having fulfillment centers here. The issue of whether true out-of-state merchants whose only contact with Indiana are its affiliates became muddied into the discussion. The average voter/consumer did not understand where the physical location argument stopped and the alleged “nexus” argument began.  (See my full post Internet Tax Looming in Indiana?) [Read more…]

Internet Tax Looming in Indiana?

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Several months ago after speaking to my state representative, I wrote a post about Indiana and the Advertising Tax and the fact that affiliates in Indiana were safe for the time being because our legislature had repeatedly refused to enact an Internet tax and had actually made a deal with Amazon not to make them collect the taxes in exchange for Amazon building distribution centers here. A lot has changed very quickly in the last week.

The IBJ reported yesterday that Simpon Property Group filed suit against the Indiana Department of Revenue to force the state to begin collecting sales tax from Amazon. While I haven’t yet seen the suit, the article made it sound like the issue was mainly about the distribution centers but hinted a bit about an affiliate nexus. My fears were confirmed today when the IBJ reported that an Indiana state legislator is now filing a bill that will force Indiana to collect taxes from online retailers that “have a physical presence or affiliate distributors” in the the state. The exact “nexus” language is not there, but I don’t think it’s a stretch to say that this legislation in basically going to call for an affiliate tax. [Read more…]