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| The 9,000 affiliates generated $611 million in advertising revenue and $18 million in tax revenue in 2009, said Rebecca Madigan, director of an affiliate trade group called the Performance Marketing Association, who estimates the state will lose 25% to 30% of that tax revenue because the affiliates will lose business, cut jobs or move out of the state. | Pat Quinn vs. online consumer (services) Blithe Spirit |
Illinois Passes Affiliate Nexus Tax by Performance Marketing Association. March, 2011. https://www.performancemarketingassociation.com/illinois-passes-affiliate-nexus-tax/Governor Quinn of Illinois signed the Affiliate Nexus Tax into law today. This is a huge blow. The law hasn’t’ passed anywhere since 2009 (NC and RI). There are 9,000 affiliates in Illinois, it actually has the largest concentration of super-affiliates in the country. Many of you know such industry leaders such as Tim Storm of FatWallet, Scott Kluth of Coupon Cabin, and Craig Cassata of Mr. Rebates. These businesses have some very hard decisions ahead of them. Tim, Scott and Brian Littleton of ShareASale hired lobbyists, and did an amazing job of advocating on behalf of the industry. They funded a huge effort (9 lobbyists!), and even secured a meeting with the Governor, of which I was lucky enough to join. We presented an extremely compelling case, and the governor got to meet these stellar business owners, who represent hundreds of jobs just within that small group, and are the promise of the new economy for the state. But the Governor sided with big-box retailers, who are making this huge ‘e-fairness’ push around the country. It is a huge collaborative effort sponsored by Walmart, Target, Best Buy, Sears and Barnes and Noble, to name a few, to deliberately target Amazon. Unfortunately, they have been extremely persuasive, convincing Governor Quinn that he needed to pass this law. As we have seen in other states, this in fact will not gain the state any new revenue in the form of sales tax collection, because hundreds of online retailers will terminate their affiliates. In fact, the state will lose income tax revenue because affiliates will either see a dramatic reduction in their income (>25% in most cases), or will move out-of-state. The Affiliate Nexus Tax, also commonly known as the ‘Amazon Tax’ or ‘Click-through Nexus Tax’ attempts to require out-of-state retailers to collect sales tax. Per the Commerce Clause of the US Constitution, and upheld in the landmark Supreme Court case, Quill vs. North Dakota (1992), a state cannot require a retailer to collect sales tax on its behalf unless that retailer has a physical presence in the state, known as nexus. The theory behind the Affiliate Nexus Tax is that advertising on in-state affiliate websites would be sufficient to establish nexus for out-of-state retailers, obligating them to collect sales tax. The retailers’ decision to terminate affiliates is not unreasonable. In addition to the high cost, risk and basic unconstitutionality, it’s a simple matter of return-on-investment. Revenues resulting from affiliate marketing are generally relatively small. As much as we inside the industry believe in the viability and superiority of results from the performance advertising model, it is generally responsible for less than 10% of advertiser sales. The cost of collecting sales tax far exceeds the returns from performance advertising. And when retailers terminate their affiliate programs, the states do not collect any additional sales tax. However, the state does lose revenue from affiliates, whose incomes are devastated, on average, by 25-35% when out-of-state retailers terminate. That’s a tipping point. Not many people or businesses can survive that dramatic income loss without repercussions like lay-offs or foreclosures. To our Illinois affiliates: we are extremely sorry this has passed. The PMA will continue to fight this unfair legislation.
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