Affiliates May Be Screwed by Marketplace Fairness


Recently, a bill was introduced in the senate called the “Marketplace Fairness Act”, or S.1832. At its most basic level, the bill would require most business, in all states to collect sales tax from “remote customers.” These remote customers are defined as customers that reside in a state, where the retailer does not have a substantial presence. In layman’s terms, it means that sales taxes need to be collected for every U.S. customer. If passed, the impact on the affiliate industry could be pronounced.

As of today, several, large companies with affiliate programs have dropped long-standing affiliates, who reside in states that have enacted more restrictive definitions of a “substantial presence” in their sales tax laws. Illinois is an example of one such state. The legislation that this state passed resulted in companies like Amazon dropping affiliates, based in Illinois, earlier this year. What happened in Illinois has not been the exception. Affiliates in state after state have lost significant revenue streams overnight, as a result of state legislation.

If the Marketplace Fairness Act manages to become law, the concept of sales-tax-haven states disappears. No longer would retailers need to drop their affiliates, as there would be no place to hide for sales tax collection.

Online retailers and their super affiliates could be impacted. When online retailers began to exclude affiliates, because of location, the hit to revenue that many smaller affiliates experienced was too great to overcome. A great number of these smaller affiliates shuttered their operations. The result was less competition for online media and within each retailer’s affiliate program.

Online retailers witnessed further concentration of their programs, with more dollars spent on fewer affiliates. For super-affiliates, the increased program concentration resulted in greater negotiating leverage. They could force online retailers to give them highly-preferential bounties. Retailers would have little choice but to provide such terms, for fear a large chunk of their affiliate-derived revenue would disappear with the click of a mouse.

If the Marketplace Fairness Act passes, retailers may be able to have more success in rebalancing and diversifying their affiliate distribution channel. For super affiliates, they may face rising online media prices, brought on by added competition. The question will be whether or not a substantial, small affiliate base remains to take advantage of the opportunity.

For those interested in learning more about this pending legislation and its status please click on the following link.

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