Recently I tried to become an affiliate marketer with the online retailer giant – Amazon.  However, when I was setting up an account at the Amazon website, there was a note saying that “Residents of Arkansas, Colorado, Connecticut, Illinois, North Carolina or Rhode Island are not eligible to participate in the Associate program”.  I also got rejected by BuyCostumes.com when I tried to promote their Halloween costumes.  Through communicating with BuyCostumes program manager, I realized that the rejection was due to the Affiliate Nexus Tax Law of Connecticut.

There are totally nine states across the country that have passed such kind of “affiliate nexus tax” Law:

• Arkansas
• California (the law has been suspended for a year but went back into effect on September, 15, 2012)
• Connecticut
• Georgia
• Illinois (The Performance Marketing Associate won its lawsuit against the state, but Illinois has refused to suspend enforcement of the law during the appeals process)
• North Carolina
• Pennsylvania (the law was suspended early this year, but got back into effect on September 1, 2012)
• Rhode Island

The so-called “affiliate nexus tax” laws that have devastated affiliate marketers state that companies would have nexus, and the obligation to collect sales tax, if they have agreements with affiliate marketers in the state.  The overwhelming response to those laws has been that about 1,000 online advertisers have terminated their advertising agreements with affiliate marketers in these 9 states, to avoid having to collect sales tax.  This has devastated the income of 76,000 affiliate marketers.

Some analysts and journalists have used the term “affiliate nexus tax” to describe a different scenario that does not have an impact on the performance marketing industry.  The term “affiliate” has a legal meaning that often defines two companies with shared ownership or a contractual relationship to sell or be an agent of another company.  It does not define an affiliate marketing company.  In this scenario, a company would have ‘nexus’ (a physical presence that requires collection of sales tax) if they have an affiliated corporation in the state, like a sister company or subsidiary or agent.  This type of scheme does not impact affiliate marketing companies.  We should support this clarification because Hawaii recently passed what reporters have called an “affiliate nexus tax” law, but which in fact describes this other scheme and does not impact affiliate marketers in Hawaii.