Affiliate Impacting Legislation Before House Judiciary Committee

by on July 24, 2012

US House Judiciary CommitteeThis morning I spent about 3 hours watching a House Judiciary Committee hearing on H.R. 3179, the Marketplace Equity Act. (I know, I’m both an affiliate and legal geek in so many ways.) Although the hearing got a good deal of coverage from the media, I was surprised to see so few affiliate marketers talking about the hearing. What is this legislation and why is it so important to Affiliate Marketing? I’m sure that the PMA will be writing something more in depth about all of this soon, but I wanted to get this information out today while people might be thinking about it.

What Is the Marketplace Equity Act?

H.R. 3179 is a bill in the U.S. House of Representatives that would allow each state to collect sales tax from out-of-state retailers when purchases are made by residents of the state. It’s goal is to “level the playing field” between brick-and-mortar and online retailers. A similar bill, S. 1832, the Marketplace Fairness Act, has already been introduced in the Senate.

Why Is this Important to Affiliate Marketing?

Currently states have the right to collect taxes from out-of-state retailers only when a “nexus” has been established in that state. A number of states have been doing everything that they can to establish that nexus so that they can collect the taxes and raise revenue. Those states have decided that affiliate marketers constitute that nexus. As a result, the retailers simply drop the affiliates in that state from their programs so that they do not have to collect the taxes. Affiliates have suffered financial losses to such an extent that some have moved states and others have just gone under. This legislation would give all of the states the right to collect the taxes regardless of an alleged affiliate nexus, thereby negating the effect of all of the current nexus problems.

So What About That Hearing?

I will admit that I was multitasking during the 3+ hours, but I did try to take some notes. Some of the most important things that stood out to me.

  • The bill has bipartisan support and more Republicans than Democrats spoke in favor of it, despite the fact that to some it is seen as a “tax increase.”
  • The Republican author actually stated that the bill reinforces 3 conservative beliefs: states’ rights, free market competition and keeping taxes local.
  • Much of the discussion in favor of the bill focused on the disadvantage of brick and mortars because people supposedly shop online to avoid sales tax.
  • One chart said that online sales will eclipse brick and mortar sales by 2020.
  • The biggest opponent of the bill that spoke was representing catalog companies. He argued repeatedly that there is a difference between sales tax and the “use tax” that many states currently have.
  • Another argument against the legislation was that it would be too difficult for many smaller companies to track and remit the taxes for so many jurisdictions. Proponents of the legislation pointed to software that would supposedly make it much easier than in the past.

What’s missing from the above? Any mention of affiliate marketing!! I don’t know if I missed it while I was multitasking or if the speakers intentionally left it out so as not to confuse the issues. But it seems to me that we are going to have to come into the story before too long because the impact on us will be huge if this passes. The PMA has already come forward as supporting the federal legislation for the good of the affiliate marketing industry.

You can watch a recording of the hearings online if you are so inclined. You can also read the full text of the bill and watch it’s progress.  It’s not quite as exciting as the School House Rock version, but you can see the path it is taking to hopefully become a law.

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Thanks for reading! I am a lawyer, blogger, affiliate marketer, and consultant most known in the industry for my cashback site, SunshineRewards.com. You can reach me on Twitter @sunshinetricia.
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{ 6 comments }

kathy867 July 25, 2012 at 10:32 pm

I really appreciate the recap Tricia..I will try to tell the story to my friends influence and thought about how compelling that story had to be to make an impact.

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Hedy July 25, 2012 at 10:06 am

Thanks for the wrap up, Tricia.
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Judi Moore July 25, 2012 at 8:46 am

Tricia, I love that you’re a marketer AND a legal geek!

I listened to the whole thing yesterday, too, and you did a great job of making that long story brief and easy to understand. I was pleased to hear the bipartisan support and the balanced arguments.

I personally think that leaving affiliate marketing out of the argument might be the answer. It impacts us enormously, but we have just a “big tent” as an industry that adding that dimension might turn into a major distraction.

The hearings seemed to be focusing on addressing the tax collection problem: fixing the hole in state’s budgets, leveling the playing field between local and virtual and doing it in light of the Quill decision and the need to bring it to the federal level.

I know Rebecca (PMA) was there and I bet there were others. I heard something at the beginning said about the large amount of interest in the hearings and the audience.

I hope that yesterday’s hearings mean the bill is moving forward. I guess we’ll know more when the 5 days for further questions elapse and we see what happens next.

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Tricia July 25, 2012 at 9:50 am

I think that you are right about intentionally leaving affiliate marketing out. Where I think we do need to come into play is when they start talking about the “woman sitting around her dining room table selling stuff.” Why is her small business as a merchant any more important than the woman sitting with a laptop blogging and making money as an affiliate marketer? It would shoot down what I think is one of their more “emotional” arguments about the legislation. It will definitely be interesting to see what happens after the 5 days is up!

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Judi Moore July 25, 2012 at 9:55 am

When I heard that story, I thought it was someone’s way of inserting us into the picture. I had a mind-wandering moment about how we try to tell our story to influence and thought about how compelling that story had to be to make an impact.
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Trisha Lyn Fawver July 25, 2012 at 2:02 am

Thanks for the recap Tricia! I knew it was today but got caught up & forgot all about it! I, for one, appreciate the recap and I’m sure there are a bunch others that do too!
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