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California, Here They Come

As September 15 approaches, the California Board of Equalization is gearing up to step up enforcement of sales tax collection for online sales. This activity is a direct result of the passage of AB155 last year and the agreement reached between Amazon and the State of California.

The law applies to out-of-state retailers that have substantial nexus with California consumers. This includes any out-of-state retailer that has sold more than $1 million to California consumers in the past year and has had more than $10,000 in sales referred by an affiliate operating in California.

Merchants meeting the conditions outlined above are required to collect and remit sales tax for purchase made by or shipped to residents of California as of September 15. The California BOE is in the process of notifying merchants of the requirements.

During the next couple of years around 100 auditors, lawyers and others are being hired by the state to ensure compliance with the new requirements.

So, what does this mean for our industry? Some merchants will not be affected; their sales do not meet the criteria for nexus. Other merchants will be affected and will either begin collecting sales tax or, remove affiliates to avoid nexus. It is important for merchants to seek qualified counsel before making any decision.

Merchants have options regarding their affiliate programs. A solution similar to the solution identified by a team of independent New York Affiliates back in July 2008 is one possible solution. Remember that back in 2008 a group of NY Affiliates banded together to identify and implement solutions. With help from some we were able to retain legal counsel. Read more about the New York experience that paved the way at NYAffiliateVoice) Other options in California and other states have also been identified by us. Merchants need to seek and retain their own counsel to verify that these possible solutions apply to them. As always, never simply accept the opinions of counsel not retained directly by you. Costly mistakes can occur by accepting advice of anyone other than your own lawyers and accountants.

The impact on Affiliates in California will be the same as in all the other states where new nexus definitions have been passed. Some Affiliates will see little or no changes in their income but others will lose some income as they are  removed from programs. Other Affiliates may see additional terms and restrictions placed on their activities as a result of the implementation of the “New York Solution”. There may be a loss of income from one merchant if program closes but California Affiliates should not be discouraged. There are thousands of merchants to choose from.

As New York Affiliates learned, recovery is possible. Replace merchants that drop you. Adopt new terms and conditions as needed. Most importantly, diversify.

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