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Illinois passes affiliate tax law

It’s official. The state of Illinois passed legislation March 10 that requires the collection of sales tax by retailers on goods sold there, even if those retailers’ presence in the state is solely online. This is the first time since 2009 that the Affiliate Nexus Tax law has been enacted and response has been swift.
By March 11, Amazon had already decided to drop its Illinois affiliates in order to avoid the tax, a response anticipated by Sears, among others.
Sears’ attempt to capitalize on this hit to Amazon’s affected affiliates came in the form of an open letter from President of the retailer’s eCommerce Division, Imran Jooma. The offer, which assured affiliates of a place with Sears when the time came, echoed similar announcements last week by Walmart and  Barnes & Noble, in which Amazon’s threatened California affiliates were courted by the two companies.
The decision by Illinois Governor Pat Quinn, who signed the legislation, has naturally been criticized by affiliate marketing sites, which claim enforcement of the law negatively, rather than positively, affects the state’s collection of revenue.
There are currently 9,000 affiliates in Illinois.

Google allows users to block unwanted domains

A Google Chrome extension, which launched last month and which gives users the option of blocking sites they find undesirable, became an official feature following an announcement on Google’s blog March 10.
Now, when users return to Google after searching, they will be able to hide all results for the domain they’re navigating away from. The number of blocked results will be shown whenever a new search is performed, and blocked sites can be managed, or unblocked. A user just has to log in to confirm the block of a specific domain.
Google says this will help users personalize their search, though they acknowledge that the sites most likely to be blocked are “offensive, pornographic or of generally low quality.” In other words, the new feature will help Google in its recent efforts (such as last week’s algorithm update) to demote spammy sites and content farms in its search rankings, though the search giant says they won’t be using the blocked domains as a ranking signal until they can “look at the data and see whether it would be useful.”

Blekko’s new AdSpam algorithm sees 1.1 million domains banned

An algorithm update to search engine Blekko has resulted in the ban of about 1.1 million domains from its search rankings. The new algorithm, dubbed AdSpam, is designed to hone in on content farms and other sites with low quality content as well as sites using keyword-based ads alongside this type of poor content.
Like Google, Blekko has been making efforts of late to purge content farms from its search rankings, though the latter has taken more radical action than the former in entirely banning, rather than demoting, undesirable sites. Of course, Blekko, which serves only about 500,000 unique visitors monthly and processes just 1 million queries daily will have an easier time than its much larger counterpart in weeding out such sites.
Still, the jump from 20 sites banned by Blekko at the end of January to the 1.1 million banned this week is a move befitting a much larger search engine.

Patent infringement suits are word of the day: Google, Amazon, Foursquare and others hit

When it rains it pours, and, this week, lawsuits over patents seemed to be dropping out of the sky.
Software outlet Masterobjects brought suits against Amazon and Google March 10 and 11, respectively. The outfit claims the two online giants’ use of instant search, which enables search results to begin appearing even as a user types in a query, infringes on their own 2001 instant search patent. It is not yet certain whether Masterobjects will file suits against other major companies offering similar search features, such as e-Bay, Apple and Microsoft.
Foursquare was hit with its first patent infringement suit, brought by Mobile Commerce Framework, March 11. The suit concerns the fact that Foursquare’s mobile apps allow users to search by merchant type and location in order to get information about and offers from merchants. A statement from Foursquare has dismissed the suit as being “without merit.”
JDate filed suit March 11 against fellow dating sites OKCupid, Zoosk and 2RedBeans for allegedly infringing on a patent on a match-up feature that identifies mutual interest between two members and that accordingly notifies them of such.

Twitter backpedals with update to new Quick Bar feature

Response to Twitter’s introduction last week of the Quick Bar, which feeds promoted trending topics right into the Tweet stream, has been big. Moreover, it’s been ugly.
Users were almost immediately up in arms about the feature, which appeared on the iPhone app version. A poll conducted by Mashable last week showed over 81 percent of the 2173 users surveyed found the feature “intrusive” and “couldn’t stand it.” The Quick Bar’s introduction was even loathed enough to earn the feature a new moniker: the “Dickbar.”
In an act of appeasement, Twitter released an update to the app March 9, which means the Quick Bar will no longer overlay on Tweets, though the feature will not be disabled and will remain in the timeline.
Evidently, Twitter believes this will be enough to quiet irritated Tweeters but that remains to be seen. For the time being, the Quick Bar is just something users will have to deal with.

Skype launches advertising program

Skype announced on their company blog March 9 that they are beginning to introduce advertising on their site’s homepage, though the company’s Chief Marketing Officer Doug Bewsher says they may soon experiment with ads in other areas as well. Already on board are Visa, Universal Pictures, and Groupon.
Advertising is something Skype has been mulling over for some time now. In May, Josh Silverman, the company’s CEO at the time, told The Telegraph that ads might help keep the Skype-to-Skype service free and maintain its quality. Fortune surmised in an article last August that introducing ads could bring in $200 million annually in new revenues for the company. And for the past couple of months, Skype has been experimenting with test ads for the online music service Rdio.
Bewsher’s blog post promises the ads will remain unobtrusive; he says users’ Skype experience will not be interrupted, as pop-ups and banner ads will not appear during conversations.
Though Skype may use location, gender and age, among other data, to target the ads, Bewsher says users can choose not to share this non-personally identifiable data using the system’s privacy options.
For the time being, Skype is focusing on markets in the US, UK and Germany, so ads will appear in those countries first.

SCVNGR’s LevelUp makes a game out of daily deals

Location-based gaming platform SCVNGR broke into the daily deals arena March 10 with the pilot launch of a new app for iPhone and Android. LevelUp, which will be available first in Boston and Philadelphia, uses game mechanisms and location to bring relevant deals to consumers and encourage customer loyalty for merchants.
Users new to the service are considered as being at Level 1, and advance in levels as they buy into offered deals from a particular merchant. Deals get juicier as users progress in levels, encouraging return business for SCVNGR’s partners. For instance, users getting in on Boloco’s Inspired Burrito deal offered through LevelUp might get an even better discount offer from the restaurant the next time they check in with LevelUp.
A SCVNGR blog post claims the deals service is different from others in that rewards can be used immediately, simply by showing the partner merchant the deal on your phone or by making a print-out.

Changes made to Apple’s in-app purchase policy

Likely in response to concern from parents, Apple updated its in-app purchase policy for iPad and iPhone March 9, with the introduction of new device software.
The change will make it more difficult for children to make accidental or uninformed purchases on the devices, which their parents haven’t approved.
Whereas entering a password to make a purchase used to leave the buyer a 15-minute period in which to make further purchases without re-entering that password, now a password must be entered again right after a purchase has been downloaded.
Angry parents aside, the update may also cater to the FTC which has recently voiced concern about the misuse of in-app purchases by children. The organization’s chairman, Jon Leibowitz, wrote in a February letter that the FTC would “look closely at the current industry practice with respect to the marketing and delivery of these types of applications.”

Editor’s Note: The more points of view that are put out about Illinois Governor Pat Quinn’s ratification of the ill-conceived affiliate nexus bill HB 3659, the more chance the industry has to come together and have a discussion on the matter. ReveNews and industry veteran David Lewis wrote an excellent analysis of the law, the tax, and put forth a pragmatic proposal on how it should be dealt with. With his permission we have published it here in its entirety. By request comments have been turned off. Enjoy:

Yesterday Governor Pat Quinn of Illinois signed HB 3659 into law. There is plenty of background on the so-called Advertising Tax / Affiliate Tax / Amazon Tax / whatever you call it so I will give some basics and then move on to a view of solutions that might work.

The Basics

Consumers are required to pay sales tax regardless of whether or not a retailer collects it. Retailers who do not have nexus, a physical presence in a state, are not required to collect sales tax, leaving the burden on the taxpayer. Most individuals do not pay the sales tax (also known as use tax when not collected by the retailer). In an effort to collect this tax, some states have passed laws that make an affiliate relationship the equivalent of nexus for retailers.

There are two main problems with these laws:

1. These laws may not be legal. In 1992, before eCommerce began, the US Supreme Court ruled in Quill v. North Dakota that only the federal government had the right to pass laws related to interstate commerce.
2. These laws may decrease, not increase, revenue for states enacting them. When out-of-state retailers such as Amazon and Overstock.com terminate their relationships with affiliates, these affiliates will lose revenue, be less competitive with other affiliates and, in some cases, flee the state. This results in lower income tax and sales tax and higher unemployment payments.

Where are the relationships?

While I am extremely biased on this issue, I like to take a non-biased approach. I have been looking for a solution that works for both sides and doesn’t wind up having the states spend a lot of money fighting this in court.

The only perfect solution would be for Congress to enact a law requiring the collection of sales tax for the entire country. That levels the playing field in the US and, unlike in affiliate marketing where foreign companies can step in with a new-found advantage, foreign companies are less competitive due to shipping costs so they can’t take advantage over companies within the jurisdiction of the new law. But Congress won’t pass a law that will feel like a new tax to consumers/voters and where someone else (i.e. state legislators) get to spend the money.

The state of Illinois does not have a relationship with Amazon. It has a relationship with FatWallet which has a relationship with Amazon but that is not enough to create nexus. Better yet, the state of Illinois has a relationship with its residents. Residents are two things in this relationship: Shoppers and taxpayers.

In fact, it is the resident, not the store, who has the requirement to pay sales and use tax. Stores are the conduit to the collection of the tax similar to employers for income and employment taxes. You may be wondering why employers have to collect taxes and remit them to the government but stores don’t have to. Simple: It is a federal mandate. Plus, an employee establishes nexus for their employer in a state while a shopper does not create nexus for a store. Were Congress to define a shopper as establishing nexus, this would all be over.

Who do states have authority over? Taxpayers!

States can mandate what taxpayers need to do, say when they file their annual tax returns. States also have agencies that license accountants and enrolled agents, the only people licensed to prepare tax returns.

Think about how the Feds finally got Al Capone… that’s right, it was for tax evasion! There is your answer: Tax returns.

The Illinois Department of Revenue figured that out and added line 22 to the form IL-1040 for 2010 (pdf). It is a required field for “Use tax on internet, mail order, or other out-of-state purchases.” Your next question should be how effective has collection been? You might assume that it wasn’t effective and that’s the reason for HB 3659. The only problem is that very few individuals have filed the IL-1040 with this new line. Believe it or not, with all of the yelling and screaming going on the Illinois legislature, there has never before been a line on the IL-1040 for individuals to pay their use tax. I did some digging and there has been form ST-44 (pdf) for payment of use tax but it was not referenced in the 2009 IL-1040 instructions.

It seems to me that the best course of action for Illinois to take (or any state for that matter) is to let line 22 take effect and roll out an education program to inform taxpayers about this requirement. In addition, leveling fines for non-compliance would work as well. [Disclaimer: I report my online purchases on my California form 540.]

What about tax preparers?

When a tax professional, whether a CPA or an enrolled agent, prepares a tax return, they are required to sign it. They state that to the best of their knowledge, the return is correct.

Illinois has a use tax worksheet as part of the IL-1040 instructions. Why not make it a form that gets included with the return? Better yet, if this is such an important issue, require that both taxpayers and tax preparers must sign it. Again, educate taxpayers that they must pay use tax.

Plus, every state has a department that certifies CPAs. In Illinois it is the Department of Financial & Professional Regulation. As part of continuing professional education, the state could require training regarding use tax. I don’t know how it would be more than 10 or 15 minutes but it sure would get the point across.

Tax software can help

Intuit and other makers of tax software like to maintain good relations with the various makers of tax forms (e.g. Illinois Department of Revenue). The states can ask Intuit to have a question posed to taxpayers and tax professionals before a return can be printed or filed electronically: Did you pay your use tax? Of course, it could also be a required field that doesn’t have an override.

Some states may also be able to require this. While the Federal government cannot copyright documents that it produces (they belong to us, the people), most states can. If the tax software companies want to use these forms, they will have to agree to certain terms.

An alternative solution

When I met with state legislators and their staffs in Sacramento and their home offices in Los Angeles, I was surprised that they always asked me for an alternative solution to raising the money if they didn’t pass this bill in California. It baffled me why I should be required to have one. This is a bad bill. To me, it would be akin to my proposing to close all of the prisons in the state to save billions of dollars annually. No one would do that because there are negative repercussions to it. Well, killing small businesses is bad in my book.

I finally have a solution: The states have legal relationships that they should work with to collect use tax. Stop trying to improperly use affiliate relationships to (quite possibly illegally) establish nexus. The best part for lawmakers is that under my plan, they don’t need to take sides between small businesses (e.g. affiliates) and the big box retailers (who donate millions to politicians campaigns).

As for Illinois, HB 3659 doesn’t go into effect until July 1. There is still time to put it on hold and give line 22 a chance to work.

The fallout from Governor Pat Quinn’s ratification of the ill-conceived affiliate nexus bill HB 3659, Illinois’ version of the so-called Amazon Tax, has begun. As threatened upon the approval of the bill, Amazon terminated its relationship with all affiliates within Illinois. Overstock and other merchants are expected to follow suit.

According to the Chicago Tribune, Illinois has approximately 9,000 companies active in the affiliate industry that generate $610 million in taxable revenue for the state. All will be impacted by the approval of the nexus tax and many will be stripped of revenue earning agreements as out-of-state merchants like Amazon terminate deals in order to avoid the tax.

Today one of the well known companies who focused on affiliate marketing indicated it would leave the state. CouponCabin, winner of multiple industry awards, is currently based in Chicago, is active in the community with $700,000 worth of donations to local charities, and has over 40 full-time employees. According to a press release issued by Scott Kluth, CEO of CouponCabin, the company is now actively seeking to leave Illinois:

“The Governor’s approval of HB 3659 is deeply disappointing. As a result, Illinois will lose jobs, many thriving businesses like CouponCabin and other affiliate marketing firms will be forced to move to other states, and most important, this law will not generate the tax revenue Illinois thinks it will collect.

Those of us who opposed HB 3659 made every effort to persuade the Governor that it is a misguided attempt to bring ‘fairness’ and new revenue to Illinois by requiring out-of-state merchants who advertise on websites operated in Illinois to collect sales taxes from Illinois customers.

The reality is that just like other states that approved similar legislation, Illinois will not collect additional tax revenue. Instead, the merchants who would be affected by this law will simply sever their contracts with Illinois affiliate advertisers, as they have done in every other state. The only result of this law is that high-growth businesses like CouponCabin will be driven out of Illinois to maintain their relationships with out-of-state merchants.

We support efforts to find a solution in Illinois that could correct the damage HB 3659 will cause. We will also continue to work within our industry toward a national solution to these tax issues that would enable our businesses to continue to grow and create more jobs, no matter where they are located.

In the meantime, CouponCabin is actively exploring moving to Indiana. It’s a shame we have to consider leaving our longtime home in Illinois, but we will do what is best for our business.”

Other large affiliates who could be severely impacted include FatWallet (over 50 full-time employees), Brads Deals and Mr. Rebates.

Barnes & Noble seized the moment this week when it published an open letter reaching out to spurned Amazon affiliates. “If Amazon doesn’t want you we do!” proclaimed BN.com president, John Foley. The letter was sparked by Amazon’s announcement that it plans to close its Irving, Texas, distribution center in connection with the State of Texas’s claim that Amazon owes $269 million in uncollected sales tax. Texas countered by announcing a new bill, HB 1317, proposing the implementation of a sales tax program targeting affiliates.

Since 2008, state legislators have been in hot pursuit of online retailers who fail to collect sales tax. To achieve their goal, they pass legislation that defines affiliate programs as providing out-of-state companies with nexus. In other words, they now need to collect sales tax. Multiple states are considering similar legislation to close budget shortfalls.

Amazon affiliates felt the brunt of this legislation. Over the last three years, Amazon terminated affiliate agreements in Rhode Island, North Carolina, and Colorado when they passed their own version of an online sales tax. Past history suggests that if the Texas bill passes, Amazon will follow pattern and terminate Texas affiliates, too.

Since Barnes & Noble has physical locations throughout the country, they’ve already extended their sales tax collection to online sales. Barnes & Noble also took a clear shot at Amazon’s actions with its statement that “we will take care of collecting and remitting all sales taxes due on BN.com sales to its customers so you and our customers don’t have to worry about being hassled or prosecuted by state tax auditors.”

Amazon vs. Barnes & Noble

While Barnes & Noble refers to online sales tax bills as “e-fairness legislation,” Amazon’s line in the sales tax sand seems to be growing wider, leaving affiliates to wonder what company deserves their loyalty. It doesn’t help Amazon’s case that it is undeniably using affiliates’ livelihoods as a political bargaining chip in its game of chicken with various states.

Barnes & Noble may win some converts with affiliates who specialize in books or casual affiliate sites (certain blog sites for instance), but they are not going to win any friends with the majority of the industry being hurt by such a tax regardless if they are an Amazon affiliate or not. Additionally, it’s not a slam dunk for Barnes & Noble even with affiliates directly in their niche since public feedback about their affiliate program is mixed. And while Amazon will pay commissions on a wide range of products, Barnes & Noble has a more limited product offering. There’s also some complaints that Barnes & Noble’s program is more complicated than Amazon’s and lacks robust tools like Amazon’s A-Store.

Putting aside which program is “better,” affiliates need to acknowledge an underlying issue. Does relying solely on programs that fail to collect sales tax have the potential to hurt you, and where you live, in the long run? I’m undecided on the answer, as I can see both sides, but it’s a point of view that can’t be dismissed without serious consideration. If you’re curious about what an online sales tax could mean to your state, this interactive map provides a breakdown.

Online Sales Tax Gains Momentum

A cornerstone argument for online retailers against collecting sales tax involves the complexity around differing state laws and regulations. To undermine that particular argument, the National Governors Association (NGA) created the Streamlined Sales Tax Project (SST).

As of July 2010, 44 states and the District of Columbia had approved an interstate agreement that establishes uniform sales tax rules and definitions, and 24 states had taken the next step of passing implementing legislation. Those 24 states are: Arkansas, Georgia, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin, and Wyoming.

Under the project, states and cities still have flexibility to determine what goods are taxed and their tax rate, but they have to follow a uniform set of rules that apply to all participants.

As Missy Ward noted, “the Affiliate Marketing Industry is not against the booksellers and merchants that are looking for the same advantages online retailers have.” But instead of each state creating individual solutions, they would “love to see a federal solution which actually addresses this crucial issue.” National organizations like the Performance Marketing Association (PMA) don’t believe that the SST represents “a great solution” to the question of creating a nationwide solution.

It will take years to implement, to say the very least, it is unclear how it will change to accommodate the needs of its member states, and there are still constitutional challenges against it.

Other organizations like the Direct Marketing Association (DMA) are fighting the efforts of states like Colorado by filing a lawsuit challenging the constitutionality of the law.

An Opportunity for Other Affiliate Programs

Amazon clearly holds a lot of power in the Affiliate Industry and the eCommerce marketplace. Competitors, like Barnes & Noble, might gain traction if Amazon continues to punish its affiliates over state actions. Skittish Amazon affiliates may be open to other merchants that collect online sales tax since they can argue they’re already in compliance and stable sources of revenue.

Some affiliates make take up Barnes & Noble on their overture, but it doesn’t necessarily mean they can fill Amazon’s shoes completely. Barnes & Noble’s focus on books still leaves an opening for merchants who supply items online that can’t be substituted by local, big-box retailers. Ultimately the success of affiliate programs promoting themselves as an Amazon alternative will depend on how much effort they put into making their programs more attractive, easy to adopt, and financially viable. I’m not sure an open letter is enough.

What happens when two giants go to war? Things get messy for people caught in the middle. The most recent shots traded by Amazon and Texas in their ongoing sales tax battle have put affiliate marketers in the cross hairs. On Tuesday, February 15, the Texas State Legislature introduced a New York-style affiliate bill, HB 1317. A direct challenge to Amazon’s decision to pull distribution centers out of Texas, HB 1317, if passed, goes into effect September 1, 2011.

The First Shot

Last fall, Texas lined up with other states like New York, Rhode Island, North Carolina, Colorado, and Illinois, declaring that Amazon owed back sales taxes to the tune of $269 million. Texas claims this amount represents unpaid taxes plus interest from December 2005 to December 2009. Amazon countered the move by taking a very public stance against the Texas claim in its SEC filing:

We believe that the State of Texas did not provide a sufficient basis for its assessment and that the assessment is without merit. Depending on the amount and the timing, an unfavorable resolution of this matter could materially affect our business, results of operations, financial position, or cash flows. We intend to vigorously defend ourselves in this matter.

Amazon followed up its SEC statement by filing suit against Texas in early 2011, demanding that Texas “produce an audit on which the state bases its demand for $269 million in uncollected sales taxes.” Amazon’s suit, citing the state’s Public Information Act, contends that repeated requests for the audit results to the Texas comptroller’s office in September and October were ignored. Texas, relying on the opinion of its attorney general, countered that the audit results are protected by attorney-client privilege.

So why does Texas believe it has a legitimate claim? Amazon’s distribution center is in Irving, Texas. However, Amazon believes it’s in the clear because the distribution center is owned by a subsidiary technically based in Kentucky, Amazon.com KYDC LLC. From Amazon’s point of view it doesn’t have what is referred to as nexus, or a connection, to the state of Texas.

Strengthening Their Defense

To counter future efforts by Texas to claim sales tax, Amazon announced February 10 that it planned to close the Irving distribution center. This closure also meant the end to expansion plans that would add 1,000 new jobs to the Texas economy. In an emailed statement announcing the decision, Amazon noted that “despite much hard work and the support of other Texas officials, we’ve been unable to come to a resolution with the Texas Comptroller’s office.” The Irving center will close in April 2011.

Getting Even

Still unwilling to admit defeat, Texas introduced HB 1317. Similar in intent to the New York affiliate bill, HB 1317 makes another attempt to establish Amazon as a legal presence in Texas and thus require that it collect and submit state sales tax. At its core, HB 1317 says that sales tax applies when a retailer enters into an agreement with a Texas resident that results in commissions or other considerations related to that resident’s referrals, “including [referrals from] a link on an Internet website,” language aimed at Amazon and other online retailers.

HB 1317 also stipulates that gross sales receipts for referred state residents during the previous four quarters must reach $10,000. With quarterly revenues in the billions, it’s clear that Amazon will need to pay sales tax if the bill passes AND they maintain their Texas affiliate program. However, Amazon may have the Constitution on its side.

In Quill Corp. v. North Dakota, the Supreme Court addressed a similar issue in 1992 regarding what constituted a physical presence in the state and the requirement to collect and pay sales tax. The Supreme Court found, in this instance, that a company must be physically present in a state to require that it pay sales tax. The presence of customers alone in a given state does not constitute a physical presence.

Caught in the Middle

Once again, retail affiliates are caught between the companies they refer to and the states where they reside. Given budget shortages and no more federal dollars to close the gap, Texas believes collecting additional sales tax will make a significant difference. But what happens when the result is lost jobs and decreased personal income? Can state budgets afford to take on more unemployed workers?

Amazon and other retailers with affiliate programs have left states completely when bills like HB 1317 become law, making the bill moot with no sales tax collected as in the case of Rhode Island. It’s worth noting that:

The revenue at stake from uncollected online and mail-order purchases is significant, though not game-changing. In April, researchers at the University of Tennessee estimated Rhode Island’s government would forego a total of $132.7 million in sales tax revenue from 2007 through 2012. The average annual loss is equal to 2.5 percent of the state’s total sales tax collections in 2007.

The main result from this particular battle? No sales tax and lost income to Rhode Island residents.

What Comes Next

Texas isn’t alone in its efforts to cast the sales tax net far and wide. As other states grapple with budget shortfalls and increased demand, online retailers will continue to be targets for sales tax initiatives. In the meantime, if you’re a Texas affiliate marketer, you can join with your peers at Google’s PMA Texas Advertising Group to learn more about what you can do to support efforts to oppose HB 1317.

Editor’s Note: The Mississippi legislature has opted for round 2, after having failed in 2010, in attempting to pass their version of the anti-affiliate Amazon Tax (despite the fact that previous passage of similar legislation in Rhode Island, according to the Rhode Island Department of Revenue collected absolutely no revenue from the tax). Usually we don’t reprint articles from other sites but the following piece was so well written by 2009 Affiliate of the Year Pinnacle Award winner Mike Allen that it sums up perfectly why it is so important for Mississippi affiliates to rally.

As was the case last year, those of us involved with affiliate marketing in Mississippi must remain vigilant because the affiliate tax has been proposed again this year. Introduced by Representative Jessica Upshaw on January 4, 2011, House Bill 363 specifies that a “person soliciting remote sales through representatives in this state is subject to [the] use tax.” The bill, if enacted into law, would take effect July 1, 2011.

I have several problems with this bill that I elaborated on last year when I wrote about Senate Bill 2927 which ultimately died in committee. In short, though, this bill would define my work as an affiliate marketer as equivalent to owning a physical storefront. For example, if I am an affiliate or associate of an Internet retailer like Amazon and put an Amazon ad on my website then this bill equates my association with Amazon as meeting the “nexus,” or physical presence, requirement for state sales tax purposes. The result of my association is that Amazon would then be required to collect sales taxes for orders made by Mississippi residents.

Let me state this again because the implications are staggering: my ad on my website (which could be likened to a billboard along a highway) means that an out-of-state entity (any retailer I’m associated with via an affiliate marketing relationship) has to collect sales taxes on every order coming from Mississippi.

As I see things, HB 363 is fraught with both legal and practical problems. For starters, the Supreme Court in 1992 (Quill Corp. v. North Dakota) declared that electronic associations do not meet the nexus (physical presence) requirement for states to collect sales tax from out-of-state business entities selling to residents of their state.

From a personal point of view, this bill could put me (Shopping-Bargains.com) out of business by drying up our primary sources of revenue. When other states have adopted legislation similar to HB 363, Amazon and many other online retailers have simply severed their affiliate relationships within those states. Put another way, these online retailers simply dropped their affiliates in those states so they did not meet the new requirement. The unintended result: (1) little or no new sales tax collections and (2) more unemployment as people like me (plus employees) who depend on affiliate marketing revenue had to relocate their businesses to other states or find a different line of work.

Bottom line: I oppose HB 363 because it runs contrary to the Supreme Court’s Quill decision and it would do serious financial harm to legal Internet businesses in the State of Mississippi who are agents or affiliates of online retailers located in other states and even nations. For more information, I encourage you to read last year’s “fighting the affiliate tax in Mississippi” article that provides more details on this issue. In it I also propose a possible solution to the lost sales tax dilemma that many States are facing across this nation due to increased Internet and catalog sales.

I urge Mississippi residents to take action and contact their state representative in Mississippi and explain how HB 363 would hurt them personally and, as a job-killer, why it is bad for Mississippi. While the Legislature is in session you can call the House of Representatives switchboard at (601) 359-3770 and leave a message for your representative (I suggest asking them to call you back so you can have a personal conversation). Other contact numbers are here plus you can research the Mississippi Legislature website if we have to fight this in the state Senate also. While emailing them is fine, I do not recommend only relying on that form of communication because many times it gets lost in the clutter of the session and some don’t check it much. Personal telephone calls and face-to-face meetings are likely to be the most effective. Please do so today.

Also, you can keep track of the status of HB 363. There are links to the bill’s full text, committee details, and more on this page also.

Editor’s Note: The Mississippi legislature has opted for round 2, after having failed in 2010, in attempting to pass their version of the anti-affiliate Amazon Tax (despite the fact that previous passage of similar legislation in Rhode Island, according to the Rhode Island Department of Revenue collected absolutely no revenue from the tax). Usually we don’t reprint articles from other sites but the following piece was so well written by 2009 Affiliate of the Year Pinnacle Award winner Mike Allen that it sums up perfectly why it is so important for Mississippi affiliates to rally.

As was the case last year, those of us involved with affiliate marketing in Mississippi must remain vigilant because the affiliate tax has been proposed again this year. Introduced by Representative Jessica Upshaw on January 4, 2011, House Bill 363 specifies that a “person soliciting remote sales through representatives in this state is subject to [the] use tax.” The bill, if enacted into law, would take effect July 1, 2011.

I have several problems with this bill that I elaborated on last year when I wrote about Senate Bill 2927 which ultimately died in committee. In short, though, this bill would define my work as an affiliate marketer as equivalent to owning a physical storefront. For example, if I am an affiliate or associate of an Internet retailer like Amazon and put an Amazon ad on my website then this bill equates my association with Amazon as meeting the “nexus,” or physical presence, requirement for state sales tax purposes. The result of my association is that Amazon would then be required to collect sales taxes for orders made by Mississippi residents.

Let me state this again because the implications are staggering: my ad on my website (which could be likened to a billboard along a highway) means that an out-of-state entity (any retailer I’m associated with via an affiliate marketing relationship) has to collect sales taxes on every order coming from Mississippi.

As I see things, HB 363 is fraught with both legal and practical problems. For starters, the Supreme Court in 1992 (Quill Corp. v. North Dakota) declared that electronic associations do not meet the nexus (physical presence) requirement for states to collect sales tax from out-of-state business entities selling to residents of their state.

From a personal point of view, this bill could put me (Shopping-Bargains.com) out of business by drying up our primary sources of revenue. When other states have adopted legislation similar to HB 363, Amazon and many other online retailers have simply severed their affiliate relationships within those states. Put another way, these online retailers simply dropped their affiliates in those states so they did not meet the new requirement. The unintended result: (1) little or no new sales tax collections and (2) more unemployment as people like me (plus employees) who depend on affiliate marketing revenue had to relocate their businesses to other states or find a different line of work.

Bottom line: I oppose HB 363 because it runs contrary to the Supreme Court’s Quill decision and it would do serious financial harm to legal Internet businesses in the State of Mississippi who are agents or affiliates of online retailers located in other states and even nations. For more information, I encourage you to read last year’s “fighting the affiliate tax in Mississippi” article that provides more details on this issue. In it I also propose a possible solution to the lost sales tax dilemma that many States are facing across this nation due to increased Internet and catalog sales.

I urge Mississippi residents to take action and contact their state representative in Mississippi and explain how HB 363 would hurt them personally and, as a job-killer, why it is bad for Mississippi. While the Legislature is in session you can call the House of Representatives switchboard at (601) 359-3770 and leave a message for your representative (I suggest asking them to call you back so you can have a personal conversation). Other contact numbers are here plus you can research the Mississippi Legislature website if we have to fight this in the state Senate also. While emailing them is fine, I do not recommend only relying on that form of communication because many times it gets lost in the clutter of the session and some don’t check it much. Personal telephone calls and face-to-face meetings are likely to be the most effective. Please do so today.

Also, you can keep track of the status of HB 363. There are links to the bill’s full text, committee details, and more on this page also.

As part of the ReveNews 2011 Affiliate Industry Preview Series, I interviewed industry leaders to get a sense of their plans and goals for 2011. Today’s interview is with Kerri Pollard, General Manager of Commission Junction.

How do you feel about the health of the Affiliate Industry overall?

Bearing witness to the year-over-year, double-digit growth rates of many of our advertisers & publishers – large and small – we’re very bullish on affiliate marketing. Due to the ongoing influx of more and more consumers shopping online and seeking out the promotional content provided by affiliate marketers prior to making a purchase, this channel has become a much larger transactional source for many advertisers over the last two years. Such growth has provided us greater support and visibility at the executive level resulting in more strategic growth opportunities for the future.

What adaptions will be necessary as commerce moves to mobile?

Due to the many flavors of mobile, this may be a bigger question than you realize! Does “mobile” mean shopping via a mobile device? Downloading a mobile application? Mobile advertising via SMS? Finally, what is the definition of a mobile device – smart phones only or tablets too?

Since the core of affiliate marketing is a transaction-based business, I will speak to driving sales/leads via a mobile device. Whether a consumer opens their browser on their computer desktop or mobile device to shop or populate a lead form, Commission Junction will track the initiated click and resulting action. If an advertiser has selected to create a mobile-enabled web site, we work with them to implement a Commission Junction pixel on their resulting shopping cart.

With that said and according to eMarketer, “…the mainstream of mobile commerce is not yet based around making purchases via mobile, but in using phones as a shopping aid—for store location, product research and finding deals.”

I would agree with this statement along with their follow-on statistics regarding the most popular retail apps: coupons! Based on the above, we definitely recognize a greater opportunity surrounding performance-based advertising and the application marketplace.

How will the FTC’s “Do Not Track” policy impact the industry?

At this time we are still evaluating the potential impact of the FTC’s Do Not Track.

A high profile story this year was the over $20 million dollars in cookie stuffing fraud allegedly committed by eBay affiliates. What can the industry learn from that event?

Due to an existing relationship with eBay, I am unable to comment. My apologies!

In what ways did Commission Junction improve in 2010?

I’m really proud of our team and their successful execution against our core strategy of securing more distribution on behalf of both advertisers and publishers.

In July, we launched a beta product that addresses one of the primary challenges for content sites attempting to work within the affiliate marketing model. The manual optimization of creative can be very time consuming for these sites given the dynamic nature of their content. Our beta solution leverages available targeting capabilities (i.e., contextual, categorical) in order to assume the optimization component so we can present the right offer at the right time to the right audience.

We also deployed our new feeds service offering, which not only assists advertisers with their Commission Junction product catalog, but we can manage the distribution of an advertiser’s product data to 200+ comparison-shopping engines. Publishers are very excited about this new service offering as it addresses one of their largest pain points:  stale and inaccurate product data resulting in a very, poor consumer experience.

We’re providing more opportunities than ever before for advertisers and publishers to work with us and most importantly, drive results.

How has the recent election impacted matters in California in regards to the so-called Amazon tax?

With Governor Schwarzenegger out – and apparently ready to appear on the big screen once again – our expectation is that legislative activity in this regard will increase in early 2011.

How are social media publishers changing the game for performance marketing?

I sound like a broken record, but the strength of affiliate marketing is the ability to adapt & evolve to the consumer and their ever-changing, online shopping behavior. Publishers have demonstrated this ability for the past 12 years and I have no doubt that they will continue to do so for many more.

With that said, questions remain as to what a consumer’s shopping intent is – or isn’t – when they visit a social media site. The intent of most is to interact with friends & family, not purchase a pair of khakis. Hence, we’ve seen greater publisher success in the integration of “social” strategies into their core, promotional methods – i.e., Stylefeeder.com, Savings.com, Offers.com, etc.

Although, I’m still very excited about publishers such as www.pose.com (aka Gyroscope Technologies), which we featured at this year’s CJU conference, as they not only make it very easy for consumers to share their items of interest with friends & family as they shop, but they also build a much-needed bridge between offline and online.

What are CJ’s goals in 2011?

I am a firm believer that strategies will grow and evolve over time, but they shouldn’t be constantly reinvented. Our core strategies of increasing distribution and expanding the scope of affiliate marketing will remain the same for 2011. Obviously, there are numerous tactics within each of these components – some of which, I’ve already addressed (i.e., automated targeting solutions, feeds, mobile). We utilize The Loop (CJ’s Net Promoter Score tool) to guide our prioritization of enhancement opportunities, as our client feedback is the best source in the development of our product roadmap.

Some areas we plan to revolutionize are our reporting interface along with the tools clients use to manage their relationships. We have lots of things we want to accomplish for our clients and therefore, we will be increasing the size of our technology team significantly in order do so!