Online affiliate marketing might be a minor sideline for some people, but for others, earnings made through these kinds of links can prove to be substantial. Merely a couple of links integrated into a site’s interface can make a few extra bucks if somebody purchases anything through one of them. Unfortunately, once a lot of people start generating profits from something in a significant way, the government is certain to notice. In fact, a lot of states are trying to find ways to tax the sales from any affiliate program in their jurisdiction. Even though the language they’re using talks about all affiliate programs, the organization they’re actually targeting is Amazon.com, which generates an enormous number of sales but collects no state sales tax.
Affiliate programs aren’t taxable because of a Supreme Court ruling in 1992 stating that no business can be forced to collect state taxes if they don’t maintain an office in the state. And obviously, Amazon.com exists online, with physical offices in only a few locations. Therefore, in accordance with the law, Amazon shouldn’t be mandated to collect state taxes from any of the individuals who take part in its associate network; neither should any other businesses with comparable programs.
But this hasn’t prevented states from attempting to get around the law. The associates program of Amazon was specifically targeted by the state of New York in 2008, giving rise to the expression “Amazon tax,” after the state introduced a law that required Amazon to collect sales tax on any sales to a resident of New York, including those made through affiliate links on a non-New York website from an out-of-state associate. This same requirement could also have been applied to out-of-state merchants with ads in New York print media, yet the elected authorities only targeted internet stores. Consequently, Amazon initiated a law suit claiming that the requirement is in violation of the Equal Protection clauses of the 14th Amendment, and also New York’s own constitution.
Most analysts are of the opinion that this tax grab on affiliate programs will ultimately be deemed unconstitutional, meaning that the law will almost certainly be repealed in the end. Until then, it’s agreed, loss of affiliate income is probably going to hurt small and medium sized business people and put a damper on the business climate of the states involved. They might need to rethink the matter if their own tax revenue is ultimately decreased instead of increased.