News Brief: New Jersey Latest Star in Affiliate Tax Showdown

Things just got a little tougher for affiliates in the Garden State. State Senators Paul A. Sarlo (D, Bergen and Passaic) and Raymond J. Lesniak (D, Union) have introduced nexus legislation that will impact affiliate marketers living in New Jersey. Again, the primary argument being made is one of fairness for brick-and-mortar retailers. The bill (Senate Bill No. 1305) “revises the sales and use tax to specify certain persons deemed to be sellers and to clarify tax collection responsibilities of certain other persons and agents.”

Michael Cheng, the CEO of West New York-based, says his company will move out of state if the bill becomes law:

This legislation will force my company and family to move out of New Jersey or lose more than 50 percent of our company’s revenue. In reality, this bill will not help Main Street businesses compete against online retailers because upon passage, online retailers will immediately terminate our marketing contracts and will not have to collect New Jersey sales tax. New Jersey will lose hundreds of high tech entrepreneurs, professionals and lose out on state income tax as a result of companies moving out of the state.

Following the introduction of this bill came the news that Amazon is interested in adding two new warehouses in New Jersey with the stipulation that it be given a 22-month sales tax holiday. Amazon’s request for a sales tax holiday is in line with the strategy they used during the recent tax battle in California. Several states (New York, Rhode Island, Connecticut, and Pennsylvania) around New Jersey have passed online sales tax laws or clarified their sales tax enforcement in recent months. So New Jersey’s agreement to the holiday would make it a serious candidate for a potential 1,500 jobs. If the numbers are to be believed, the holiday may end up saving Amazon $400 million, but cost New Jersey significantly more:

The retail association and Rutgers University researchers estimated the state would miss out on $317 million in revenue annually by 2015 if online retailers without a physical presence in New Jersey, like Amazon, don’t collect and remit sales taxes.

These two stories highlight the ongoing issue of trying to fix online sales tax policy on a state-by-state basis. And even one state that’s gone down this path has proven willing to admit it’s not the ideal solution.

Rhode Island General Treasurer Frank Caprio stated the following after his state passed an affiliate nexus tax: “I looked at this issue and I do not think it’s the right idea at this time… it hurts our local business…”

Beyond a mea culpa, there’s direct numbers to support the impact on state employment levels. For instance, Illinois saw its employment numbers drop significantly after the passage of the state’s online tax. Businesses ended their Illinois affiliate programs and both CouponCabin and FatWallet decamped from the state.

Clearly state-based legislation doesn’t solve the bigger problem and creates a different set of problems. Once again, we call for these state leaders to push harder for a national fix to the problem instead of creating no-win scenarios at the state level for all involved.


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