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Now that I have your attention, Overstock may terminate its California affiliates tomorrow. The State Legislature is once again considering a bill that would make the Affiliate Nexus Tax law in California. If you are not familiar with this legislation, it defines affiliates as salespeople in order to establish nexus (the legal word for presence in the state) to out of state retailers (namely Amazon and Overstock).

We’ve been through this before. It started out as AB178 a couple of years ago. Kerri Pollard, General Manager of Commission Junction, and I went to Sacramento to testify before the Budget and Finance sub-committee. As my cab pulled up at the State Capitol, I received an e-mail that the bill was pulled by its sponsor. It turns out that there weren’t enough votes to get it out of even the sub-committee.

Now its here… again. Last year it was passed under the cover of darkness and the Governor vetoed it. Overstock terminated us last year as part of the process. Only after the Governor vetoed the bill and issued a statement that he would not allow the Affiliate Nexus Tax to become law did Overstock reinstate all of us. Fortunately, CJ’s policies give us all a week before the termination takes effect so we would have time for the Governor to use his veto stamp (can’t you just picture it in slow motion… the stamp dropping onto parchment on the Governator’s desk…. cigar in his mouth (yes, it would be in the tent outside the Capitol)).

If you are a California publisher in the Overstock program, contact your state senator… NOW. Forward Overstock’s letter and explain how AB1625 (the current form of the Affiliate Nexus Tax) will hurt small businesses in your senator’s district. If you need more information or drafts of similar letters, take a look at the Performance Marketing Association’s website.

Also, there was a good op-ed piece by Loren Bendele in today’s LA Business Journal.

If you didn’t get Overstock’s letter, here it is. Remember not to beat up Overstock for this. This is a bad law that will hurt California’s small businesses and will not generate any revenue.

OVERSTOCK.COM, INC.
6350 SOUTH 3000 EAST
SALT LAKE CITY, UT 84121
PHONE: (801) 947-3100
FACSIMILE: (801) 947-3144

August 30, 2010

Dear Cashbaq:

Overstock.com values your advertising efforts, and hopes to be in a position to continue our business connection for years to come. However, as we notified you in February, there is a measure under consideration in California, likely to be voted on tomorrow, which, if it passes, will likely result in the termination of our business connection. We are urging you to contact your Senator in the California Legislature immediately to oppose the affiliate nexus tax.

By tomorrow the California Senate will have to consider the new tax, which appeared in the Assembly’s final budget proposal as AB 1625 (Section 1), or it will die for this year. In order to pass, AB 1625 needs a 2/3 majority vote. Its chances of passage are unclear; consequently, your efforts in opposition will be highly effective.

Last year the Governor vetoed a similar measure, and we are told that the Governor has not altered his position on this new tax; however, despite this, we are concerned about last minute political compromises.

You will find information on how to contact your State Senator at this location on the Performance Marketing Association’s website.

Please waste no time in contacting your Senator today to oppose the affiliate nexus tax.

Respectfully,

Jonathan E. Johnson III
President Overstock.com, Inc.

As city and state governments scramble to make up for growing budget shortfalls we’ve seen the passing of some fairly ludicrous legislation. From the Amazon Tax passed by New York, Rhode Island, and North Carolina to Colorado Governor Bill Ritter’s “Dirty Dozen” which included a tax on bull semen, we’ve seen a lot of ridiculous legislation in 2010.

Enter the city of Philadelphia whose government seems to think that blogging is the next big untapped treasure trove of tax revenue. Philadelphia has imposed a business privilege license on all bloggers who reside in the city limits. Cost of the tax, $300.

According to tax attorney Michael Mandale as long as a blog is engaged in an “activity for profit” for example taking any advertisement including Google AdSense, the city of Philadelphia’s “blogging tax” applies to them. By such a definition blogs or sites on communities like Squidoo, Livejournal and platforms like WordPress and TypePad would be subject to such a tax.

The thing is a lot of people who blog do so as a hobby or a form of self expression. They may put up an occasional link to Amazon or to Fandango because of a book or movie they have seen but most are not making a living off of blogging. In fact both local bloggers interviewed by the Philadelphia City Paper made less than $50 over two years. But as Michael Mandale points out the law applies whether or not the blogger “earned a profit during the preceding year.”

Interestingly the way the law is written it would exempt most corporate blogs from being taxed separately because most corporations do not display advertising on their blog.

Now, I don’t fault the Philadelphia city government for searching for new tax revenue resources especially when faced with the crisis of a budget shortfall. In fact, I would classify myself as generally pro tax. But this law is just misguided for many reasons.

1. Jurisdiction: The law is targeting the blogger who hopes to earn a profit through advertising. Fine. But what if a blogger living in Philly blogs on a third party site, say they setup a Squidoo Lens, but chooses not to run their own advertising. Let’s say the third part site then decides to run advertising triggered by the blogger’s content. Seems wrong that the small blogger would be taxed but the larger business (the site) would be allowed to make a profit untouched.  Philadelphia having no jurisdiction over matters outside of its city limits could never impose the tax on a site outside of its city limits. Yet, in the scenario above it could not tax the site for the very same content and potential profits that it is trying to tax the blogger for.
2. Enforcement:By the city’s own admission they do not keep track of how many bloggers reside in their city limits. In fact it might be an impossible task at least from a resource standpoint, not just for Philly but for any city, to actively enforce such a law. So the only people this law taxes (punishes) are those honest enough to come forward and pay it.
3. What Content is Taxable?: The supposition here is that the blogger is seeking out advertisers and the revenue from ads should be taxed. But I’m sure that the city officials are thinking about traditional display style ads. What about in-text ads or outright advertorial? Are those taxable? If so, how will the city enforce? What about, as mentioned earlier, blog content from a large business or corporate entity? Such a blog isn’t likely to have advertising but essentially does serve a marketing/advertising purpose for the company that created it. Is that taxable? Will companies then be required to pay two taxes: one for their business license and one for the privilege of having a blog?
4. Small Business Growth: In a city that is trying to encourage small business growth, as Philadelphia claims to, aren’t such tax measures a great way to hamper such growth? Bloggers who become successful enough through their writing will naturally evolve into businesses that bring in new tax revenue. Government should be cultivating business growth not burying it before it has a chance to flourish.

In Philadelphia there is already an effort to reform the current business privilege tax put forward by local City Council members Bill Green and Maria Quiñones-Sánchez so that the law wouldn’t apply to business that had not generated over $100,000 in revenue. While I applaud that effort, government tends to be a bit of “monkey see, monkey do.”

Among the repercussions of New York’s passing of the Amazon Tax, was that various states lined up to follow New York’s lead without really looking at the impact of the legislation. Don’t be surprised if a city near you follows in Philly’s footsteps.