California Stays the Decimation of California Affiliates

Like all stays of harm, this past week in California was a mixed-bag for California’s small “affiliate advertisers” (websites who host advertisements on their site on behalf of retailers): you breath a sigh of relief but are quickly reminded the delay is temporary.  For California affiliate advertisers, this came in the form of a one-year delay in forcing out-of-state small businesses to collect and remit taxes to California if their only physical presence is through affiliate advertisers.

So what happened and why is this a mixed-bag?

This past June, California, despite the cries of over 19,000 small affiliate advertisers, passed into law an extension of the physical presence classification to any business that pays sales commissions to California affiliates.  Under the June law, if an out-of-state seller uses a California affiliate, the seller must collect and remit taxes.  For large our-of-state retailers, it is easier to cancel their California affiliate programs than to begin collecting and remitting taxes, and, as soon as this law was passed, Amazon did just that costing thousands of California affiliate advertisers their jobs.

Small California affiliates can breath a very short sigh of relief, but must still face the unfortunate fact that California’s tax law might still come and decimate them.

However, this past week, California wisely decided to pull-back on this law.  BUT…this is not a complete repeal, its only a delay.  The new law, signed this past Friday, puts on hold, for a short-time, the use of affiliate advertiser to create physical presence.

But no matter what happens, within one or two years, the requirement for businesses with California affiliate programs to collect and remit taxes to California will be in effect.  It’s a one-year delay if the federal government does not pass a federal streamline-sales tax bill (SSTP), number one on the iAWFUL, or a two-year delay if the federal SSTP bill is passed.

So if the federal SSTP bill is not passed, out-of-state sellers will continue to avoid using California affiliate advertisers since that would create physical presence in California.  If, instead the federal SSTP bill is passed, affiliate advertisers in California will be fine, since using them does not affect physical presence, but, instead, small retailers will be sacrificed since under a federal SSTP small retailers must understand and conform with thousands of different tax regimes and programs.

Talk about deciding between the fate of one group or another.

So small California affiliates can breath a very short sigh of relief, but must still face the unfortunate fact that California’s tax law might still come and decimate them.

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