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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