Arizona’s Affiliate Nexus Tax : The End of Affiliate Marketing in Arizona?

affiliate nexus tax
Are Arizona lawmakers going to pass an affiliate nexus tax?

To make up for Arizona’s current $1.5 billion deficit, state lawmakers want to tax affiliate marketers on the sales to people living in Arizona.

How will this affiliate nexus tax impact the Arizona economy?

HB 2551: The Death of Affiliate securities-law-framework.pdf Marketing Tax Reprieve

Technically, Arizona HB 2551 expands the legal definition of “nexus.” Nexus refers to a person’s or business’ material connection to a jurisdiction. Arizona’s HB 2551 claims that any company that directly or indirectly does business with an Arizona resident (i.e., someone from Arizona purchases something from an online store) is presumed to be transacting business in Arizona and therefore must pay a sales tax. The rule applies only if the gross proceeds or cumulative gross income exceeds $10,000 in sales over 12 months.

If passed, the new tax standard will wallop Amazon.com.

Affiliate Nexus Tax: Desperation Smells Like Perspiration

What effect would HB 2551 have, if passed?

Thousands of Arizonans generate income through affiliate marketing. Just like any other business, affiliate marketers pay their fair share of taxes. As a matter of fact, affiliate marketers in Arizona paid $3.7 million in taxes in 2009. The amount of state revenue could be higher in 2010, but HB 2551 would have to fail.

Logically, if HB 2551 passed, affiliate marketers would stand to earn less than before, thus suppressing the state’s ability to generate revenue. Not to mention that Amazon and other online retail outlets threatened to sever ties with affiliate marketers who live in states that enact nexus taxes

If HB 2551 passes, Arizonians will still be able to buy things from Amazon.com, but may not be able to join Amazon’s affiliate program.

Arizona Affiliate Nexus Tax Could Have A Negative Impact On Fund Raising In The State

HB 2551 also has the potential to reduce the amount of money Arizona’s schools can raise through programs like Box Tops for Education because they rely on affiliate websites. The Box Tops for Education program began when kids started trading cereal box tops for a few cents. Today, that program is conducted, for the most part, via websites that donate commissions earned through e-commerce sales. Merchants participating in this program include Best Buy, 1-800-Flowers, Avon, Land’s End, and Barnes & Noble.

The Effects of Similar Nexus Laws In Other States: Epic Fail

Thus far, three states – Rhode Island, North Carolina, and New York – have enacted nexus online sales taxes. Visions of budget surpluses danced in their heads, but not one succeeded in increasing revenue. Instead, the opposite happened: Rhode Island drafted legislation to repeal the original nexus tax; North Carolina gave up tracking nexus tax collections; Overstock.com and Amazon.com filed litigation to block nexus tax collection in New York.

California and Illinois are among seven other states currently considering online nexus sales taxes.

Contact An Internet Law & Affiliate Marketing Attorney

Contact an Internet marketing lawyer to learn more about HB 2551 and other e-commerce regulations.

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