Affiliate Marketing and the Effects of State Taxation

The effect of proposed state sales tax on the affiliate marketing industry has captured headlines across the nation recently. These proposals by some lawmakers are no doubt in response to a poor economy. The idea to impose a sales tax on the affiliate commissions to generate additional state revenue has sparked a huge debate. Sidestepping the issue that would be the yearning to recreate the constitution by state officials, the purpose of this article is to merely discuss the effects of such proposed taxes on an affiliate business. Here are 3 of the most immediate consequences resulting from imposing a state sales tax on affiliate commissions: Cancellation of State Affiliate Programs Online retailers such as Amazon have already stated their intentions to cancel affiliate programs as opposed to collecting sales taxes from affiliates. Other programs have indicated similar responses and in fact cancellations have already been made in a few states. The contention here is that it is unfair and illegal to impose sales taxes on a retail entity that has no physical presence in the state to begin with. Arguments, debates, and petitions have ensued with the question of constitutional violations being the core issue. You can bet now that this Pandora's box has been opened that this subject will get plenty of national attention until it is resolved. State Loss of Affiliate Income Tax This is where reality 'collides' with the 'yearnings' of state lawmakers. The intention of state sales taxes is to help reduce deficits by generating additional revenue. The reality as it seems is this plan has backfired on lawmakers. Instead of the 'additional' revenue they have succeeded in having eliminating an existing stream of revenue: income tax on affiliate earnings. When you consider the many 'healthy' incomes made by affiliates these tax losses will likely be felt at the state level. Stolen Income Opportunities from Affiliate Marketers Another unfortunate by-product of what appears to be an ill conceived tax plan is the potential loss of income for affiliates affected by these proposals. Affiliate marketing offers the potential for significant earning and to have this income threaten by newly proposed laws will not be well received. As simplistic as it seems you would feel that lawmakers would be particularly sensitive to an individual's income and especially during rough economic times. Sadly this does not appear to be the case. As it is the brunt of the potential economic loss will ultimately be felt by states thru less income tax collected. Affiliates can and will make maneuvers if need be to stay in business, but this will not return to the states the income tax they stand to lose. The identification of the affiliate marketing industry as target for taxation is an unspoken testimony to the growth, popularity and financial enormity this industry represents. As states tread gingerly into this terrain questions of unconstitutional taxation will undoubtedly continue to arise. rnIf juggling attempts with the constitution continue, the cancellation of additional affiliate programs may occur and the loss of affiliate income taxes will be felt. At this point it is hoped that corrective measures will be taken and the norm will be re-established. For the time being the states desperation to shrink their deficits may continue to tempt them to uncover taxation opportunities that sometimes don't really exist. The affiliate marketing industry on the other hand will still thrive and grow as new programs develop and thus continue to prove to be a great way to earn money online.