Fighting the Affiliate Tax in Mississippi 2011

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 ( 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.

About Mike Allen

Founder of Shopping-Bargains, a coupon and deal source featuring nearly 5000 merchant partners in the US (plus sites for the UK and Canada too). Recipient of the Affiliate Summit Pinnacle Awards 2009 Affiliate of the Year. Learn more about my 15+ years in affiliate marketing and my other projects at Businesswright Consulting. You can find me on Twitter: @mta1.

3 Responses to Fighting the Affiliate Tax in Mississippi 2011

  1. Mike Allen says:

    I have great news to report: HB 363 is now listed as dead! Thank you all for your support in this issue.

    While this is great news, the fight is not over. In Mississippi our job now needs to shift from defense alone to actively building legislative relationships and then gently providing education on affiliate marketing. I don't think most people in general (including legislators) understand affiliate marketing. Few seem to grasp the income, payroll, and other tax revenues currently generated by affiliates and affiliate marketing. Affiliate marketing is providing tens of thousands of jobs nationwide.

    While States are impacted by lost sales taxes due to Internet (and catalog) sales, I feel that instead of focusing on affiliate tax legislation that probably wouldn't stand a Supreme Court challenge, the States should focus specific economic development efforts on attracting ecommerce companies to physically locate something — anything — within their state — a warehouse, call center, shipping hub, recruitment/training center, R&D facility, etc. (they might even be able to "donate" space at a state university or economic development center). Such a physical presence would constitute "nexus" and legal challenges would evaporate instantly. It would create a win-win for businesses and that state: Affiliate jobs would be protected, new jobs would be created at the new facility, and the Internet company would have to collect sales taxes according to well-established law!

  2. Brian says:

    Just wanted to publicly say thanks to Mike for working to help all affiliates in Mississippi. My contribution of contacting my Rep was small in comparison, but I would not have able to do so without Mike making an effort to alert other Mississippi affiliates of this legislation.