Why Walmart Is Fueling The Debate on The Online Affiliate Tax Law

Why Walmart Is Fueling The Debate on The Online Affiliate Tax Law

Think of this statistic I once heard, 17 cents of every retail dollar spent in the world is pocketed by Walmart.  Wow, thats some clout.

But when it comes to clout online, Walmart lags a far second to Amazon and eBay in terms of traffic.  According to Compete.com’s latest unique visitors for the top sites on the Internet, Walmart was ranked 17th, eBay came in at 10th and Amazon ranks at 7th.  I use both eBay and Amazon to compare because for the most part they are the two largest online only retailers and both have affiliate programs.

And this is what is brewing for the Bentonville Bombers, they aim to “lay the field flat” and put an end to the unfair advantage that online companies have over their brick and mortar operations, as Walmart has to charge state taxes on all retail purchases whether online or not because they have stores (physical nexus) in all 50 states.  Amazon on the other hand needed only to pay state taxes or rather have consumers pay taxes when the consumer was from a state that Amazon has offices in, like say Washington state where their headquartered or Kentucky where they have their main distribution center.

At issue is the paying of state’s taxes on retail items such as electronics or gifts.  Many states are leading the charge on lifting the federal ban on states ability to have out of state retailers have to pay (or rather have consumers from their state) have to pay sales tax when they buy from an out of state retailer online.  The Performance Marketing Association, which represents both affiliates and online merchants, has been the authority on the issue and is actively pursuing state legislators to make the case for preserving the online space as a tax free zone.

An affiliate, according to state legislators pushing for Affiliate Tax Laws, is a nexus, or a physical presence on behalf of the merchant.  If this is so, then the merchant has a physical agent working in that state and the customers who purchase goods from who live in that state should be subject to being taxed because the merchant has an agent living in the state.  This applies to whether or not the purchase was made through an affiliate link or not.  If a merchant pays the affiliate a commission for a sale, then the nexus is established and the merchant has to collect the tax in those states on all online sales.

Walmart, while it maintains its own affiliate program (through Linkshare), is now fueling commercials “claiming that affiliate taxes are necessary to protect small businesses against the onslaught of Amazon”, according to Pace Lattin, a long time performance marketing consultant and Executive Director at Executive Council of Performance Marketing.

Lattin goes onto assert “The worse part of this entire ‘affiliate tax’ business is that behind the scenes, every State that has had legislators pass an affiliate tax, has received enormous benefits given to them from Wal-Mart. As soon as the legislators in those states showed Wal-Mart that they were on their side, Wal-Mart agreed to build new stores in those districts. The result was more small businesses in those areas being closed in order to make room for Wal-Mart. This has to be the saddest part about this entire issue. There are some small businesses that think that fighting the internet will help them, but they are actually promoting an agenda that will put them out of business faster.”

Walmart’s backing of the “Mainstreet Alliance”, the entity that funds commercials in states trying to pass affiliate tax laws is a sure sign that what Lattin has asserted.  The Mainstreet Alliance runs commercials saying that small businesses should and are for affiliate taxes.  I am sure that state’s congressional leaders are interested in jobs, but which jobs?  Jobs at Walmart?  Or jobs that are created by companies through having affiliates.  Many affiliates have been left high and dry by companies who have closed their affiliate membership to states that have not enacted such laws.  This completely reverses the trend of helping create jobs in these states.

You may create a couple of hundred jobs at a Walmart or two in your state, but this is at the expense of 1000’s of affiliates that make their living helping others find products online, either through their websites and blogs or by buying advertising online.  You may remember the initial factoid I led with, that $0.17 of every dollar spent in retail goes to Walmart, well here’s another that will put this in perspective.  Over 80% of Google’s revenue comes from small to mid-sized businesses buying pay per click ads on their network.

I don’t doubt that Walmart wants to break the back of the likes of Amazon and dominate the online space as they have done through their political and logistical upperhand in the offline world.  But what they are really doing is once again what they have done to mainstreet America, suck the life out of local small business.  I don’t hate Walmart, I even went their today (to return something I had bought), I am just not a fan of their thinly veiled politics and how they are taking away jobs that could potentially become much larger businesses.

I highly suggest you read Pace Lattin’s article on how Wal-Mart Is Behind the New State Affiliate Taxes.

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