The Marketplace Fairness Act

by Jonathan Goodman on May 11, 2013

Based on Jonathan’s conspiracy theory about why Google exited the Affiliate Management space we’ll look into the upcoming vote on The Marketplace Fairness Act, which is set to pass in the Senate and has support by the President. We will also look at the history of taxes on the Internet and see if this bill helps of hurts Affiliate Marketers and online small businesses.

Hi everyone. This is Jonathan Goodman from Halyard Consulting. This is the World of Internet Marketing, the podcast. Today we’re going to talk about the Marketplace Fairness Act. You may remember, in the last two podcasts, that I was talking about my conspiracy theory about why Google, and now SEOmoz, may have left the affiliate marketing area. And I decided to do a lot of research on this, and I can kind of refute what I originally said was a possibility. I don’t think that’s probable anymore. But, what I did to kind of prepare myself to say whether or not this was a possibility is I really educated myself on what’s going on with Congress and the Senate and internet tax.

So today, we’re going to talk about the Marketplace Fairness Act, which is currently in the Senate and it’s looking like its most likely going to easily pass the Senate. The President is supporting it, and Congress seems to be supporting it. In fact, even businesses like Amazon and online companies like that seem to feel that this is the right way to go. The final vote is on May 6, and it’s actually the second time it’s coming up to the Senate. We’re going to talk a little bit about the history, but first let’s focus on what the Marketplace Fairness Act is.

Currently, only online retailers with brick and mortar stores, in the states that the individual lives in, gets charged for tax on their online purchase. So, for instance, originally I used in my notes Wal-Mart, but I realized we can’t do that because Wal-Mart seems to be in pretty much every single state. So let’s take a company, a retail company, like K-Mart, that has seen its number of stores dwindle over the years and they’ve tried to re-brand themselves and everything. But, K-Mart, I don’t believe, let’s say for this instance, isn’t in every single state. So, let’s say if I lived in Pennsylvania and I ordered on, and I lived in Pennsylvania and K-Mart wasn’t in Pennsylvania, previously I wouldn’t have to pay tax on that. So, you can see where there’s a big gap. A brand or store out in California that is marketing on the internet and making sales, and doesn’t have a physical location in New York or New Jersey, and people are coming in to buy their goods from New York and New Jersey, they don’t get a tax, but people who live in California are being taxed on that.

This is a lot of burden on both ends. It’s unfair from the person buying the product, depending on where they’re living, but even worse it’s unfair for the companies to now try to finagle 6,000 different types of taxation, according to the state. And in California’s case, according to the zone of which they’re in. I think California has an unbelievable number of different taxes based on the community of which you’re living in. I’m not exactly sure how that works. So now, the Marketplace Fairness Act is trying to level the playing field. So if this bill passes, your state will collect sales tax from all of your online purchases that you make. There are a couple of caveats, but we’ll get to that in a second. But that basically means that if you buy something from a store that doesn’t have a physical location in your state, you’re still going to wind up paying taxes. Now, this only applies to tangible goods, and it doesn’t affect services or subscriptions. And, if a company makes less than $1 million a year, they’re going to be exempt as well, which you would think eBay would be very happy with. But they’re actually one of the opponents against this bill. What they’re saying is we need to raise that limit, from $1 million to $10 million. What’s got me, in all the research that I’m doing on this, is what is the percentage of eBay sellers that are doing over $1 million, and close to $10 million? You want to talk about the one percent of the one percent? It’s those people. Because I can’t even sell my comic books on eBay without getting ripped off by a buyer.

So, if there are sellers out there, on eBay, who are doing close to $10 million in sales, I’d love to talk to them and I’d love to understand what that is, and why they don’t have their own website then, because the fees you’re now paying out to eBay on $10 million worth of sales, it seems compared to everyone else selling on eBay, you’re giving the store away. And, the other question that comes up in this is, what about the states that don’t currently have any sales tax? There’s Oregon and Montana and New Hampshire and they have no sales tax. So I can only imagine that their senators are pretty annoyed with this if now sales tax is going to be imposed. Think about somebody from New Hampshire who has the ability to go to their Wal-Mart and not pay sales tax, but Wal-Mart has certain things that are exclusive to their website, so to get the best price you go and buy something on the internet, but now that person from New Hampshire is going to be taxed on it? It sounds very complicated, and it sounds like it might even turn certain people within certain states off to selling.

Now, the reverse of that would be, I live in New Jersey and I’m pretty sure we have an eight percent sales tax here. So if we have an eight percent sales tax, let’s assume, and I go to Wal-Mart and I make a purchase, but then I decide that there’s a better product on, and I make a purchase and that sales tax is less, I guess that would be the incentive then to buy everything online. Which I kind of do already, but certainly for people looking to not pay that sales tax, this is a great way to pay less sales tax. Now in New Jersey, we have a UEZ, an enterprise zone because a lot of New Jersey has manufacturing in it from back in the day, so now they’re trying to get both condos and houses and businesses to come back into these areas that basically had large manufacturing and now the large manufacturing has either gone to Canada or Mexico or to some other cheaper state. Those towns are now suffering, so they created the UEZ zone or something, I don’t want to embarrass myself because I don’t know, but it’s a zone that actually caps the tax rate, so you can buy something in one of these zones and you’re going to pay 3.5 percent tax instead of seven or eight percent tax. It’s one thing when you’re buying a pair of pants or, let’s say, something for $100. The difference between six and eight percent on that isn’t going to make a large difference.

But if I’m buying, let’s say a car. If I make the purchase of that car over the internet and it’s a $20,000 car, eight percent on $20,000 is a lot of money. If I could save two percent by buying it online and still walk down to my Honda and pick the car up, it gets very, very complicated very, very quickly. And I just wonder if everybody has kind of thought this out, because what could wind up happening is a further shot in the arm to physical brick and mortar retailers. Right now, all these different taxes are based on where the individual lives and if there’s a physical presence of that company in that state. But now you go ahead and tax everybody equally online, it’s going to be a plus or a minus. Either they’re going to be more willing to go to a different business that has the same product that’s closer to them and has less tax or no tax in some cases, like New Hampshire, or it’s going to push everybody online and the brick and mortar stores are going to suffer even more than they’re suffering now.

That is what is coming up in the Senate now. Winston Churchill had a great saying, which was, “The Americans get it right after they’ve tried all other options.” We’re going to go into a little bit of the history of online taxation and we’re going to look at how we’ve gotten to this point so far, after we take a break. We’re going to take a break now, come back and talk about the history of online taxation. We’ll go through Quill Corp v. North Dakota, Streamline Sales and Use tax, the Main Street Fairness Act and where we are today with the Marketplace Fairness Act. Okay, we’ll be right back.

Okay. So, let’s walk through the history of how we’ve gotten to this tax. First, we need to talk about Quill Corp v. North Dakota, which was where the Supreme Court decided that retailers need only collect sales tax for states where they have a physical presence. This was prior to the internet coming on board. So, the internet looked at that and said now all internet sales are going to be tax-free. Then, in 1999, the Streamline Sales and Use tax was created. Again, fairly early on in the internet world, but the purpose was to streamline and simplify the sales tax collection for businesses located and operating in different states. Local brick and mortar stores were subject to their state sales tax laws, and they had to make the collections, while remote sellers like businesses that sold online across states, even including mail order or through the telephone, they didn’t have to collect or pay taxes. Then, the Main Street Fairness Act was introduced by Congress, and that bill overruled the 1992 Quill ruling and it allowed for 21 states to voluntarily adopt the Streamline Sales and Use tax agreement and require large internet and mail order retailers to collect taxes for local sales.

Now, during this whole time, something called the Affiliate Nexus Tax was created. And if anything really affected the Affiliates, and we’re going to get into who is affected by this upcoming tax and did Google back out, which we know now that they didn’t because of this tax, but the Affiliate Nexus Tax did far more harm to affiliates. It supposedly affected 60,000 small businesses that then their incomes became constrained by the tax, and affiliates were dropped left and right. A perfect example of this is Amazon’s decision to terminate all affiliate relationships with any Illinois-based affiliates. I believe that what happened is that the Affiliate Nexus Tax essentially started in Illinois, and I think before it grew any further, an Illinois Circuit Court judge struck down the law. But, during that time, and there’s quite a bit of time between this law being enacted and it being struck down, companies that were solely supported or partially supported by affiliate marketing and were in Illinois were essentially told by Amazon or other affiliate marketing companies that they weren’t going to do business with them anymore. This caused a lot of companies to either close or move across the border, away from Illinois, of course impacting Illinois’ ability to collect any state tax whatsoever, including all these people buying houses or cars across the border or another state. So, now what you have, after that, came kind of a combination of two bills that were being worked on at the same time, and that’s now where we get this new tax, the Marketplace Fairness Act. And, what’s interesting is that Amazon is for it, Senators are for it, it seems like most of consumers are okay with it – in fact it might be a benefit to them in the end – but where does it leave the affiliate?

Originally, my whole conspiracy idea was, and you kind of have to follow me in my thinking, it really turned out that the Affiliate Nexus Tax was trying to do this but failed. Which was, to say back to the federal government, that wherever the affiliates themselves were located, that in and of itself created a nexus in and of itself for the affiliate network. Then, that made them collect tax. So in other words, backing up on what the Affiliate Nexus Tax was, it essentially said if you have an affiliate – in this case in Illinois – that your business is out in California, but you have an affiliate relationship with a company out in Illinois, the nexus then becomes, as well as California, it also becomes Illinois. So, I guess in hindsight, had the Affiliate Nexus Tax taken over and we weren’t now seeing a Marketplace Fairness Act, that would have significantly impacted affiliate marketing and you would be now seeing Google exiting the marketplace and all these others. So it seems that Google’s exit of the affiliate networks is completely due to that it simply wasn’t making as much money as some of these other large enterprises that Google runs, like the Android app and phones, that they’re making huge amounts on, and Google advertising, which is obviously the mainstream piece where it’s revenue is coming from.

So, that is the Marketplace Fairness Act conversation. I think that we’ve gone through, looked at the history and how it’s come to be, and I guess, if asked, I would say that I would then support it. I think that it’s the best solution for now. I just hope it doesn’t now steamroll over either brick and mortar retail, online sales for individuals and consumers that live in states that there is no sales tax, but hopefully it’s the best that we can do at this point. We’re going to take another very short break, and when we come back we’re going to talk about another couple of issues and I want to introduce you to a really fun website that I just found out about last night and I really have to introduce it to you because I think you’re going to love. Okay? We’ll be right back.

Okay, we are back. So I went to the affiliate summit meetup in New York, and if you’re not familiar with, it is a great place for you to find the niche group across the board, whether it’s technology, whether it’s dating or tourism or religion or whatever it might be, is a really great avenue for you to find groups of people that are interesting and unique and fit what it is that you’re interested in and molded to. I’ve been attending the WordPress New York City meet-up for two years, almost three years, and it’s the third Tuesday of every month. It never changes, the location changes, but that in itself doesn’t change. It’s always the third Tuesday of every month, and it’s a great way. The people who come in to speak – I’ve spoken there – it’s great information, it’s a great group of people. Last time, this past month, there were 118 people, which is really incredible. I’ve always wanted to be involved with the affiliate summit meet-up, but their schedule moves around a little bit. The location stays the same, so kind of the opposite of what WordPress New York City is doing, but now that I know the people that are there, I’ve explained to them, this is the one day that I have another meet-up that I go to, so please just don’t make it the third Tuesday of the month. So now hopefully I’ll be able to attend the affiliate summit.


While I was there, afterword, there was networking before, networking after the lecture, and I met – I’m going to mispronounce this name completely – Anton Velikanov, and he has created a website … first of all, he came in and he’s about six-foot-four, lanky, and he came in a little bit late with one of these drones that you can get now, these four propeller helicopters that you can put a camera to, so very cool. He sat in the back and then I got to speak to him toward the very end. Aside from that, he introduced me to his company, which is I told him I’d mention it, because I was really impressed with it. What it is,, allows you to go on and for a small fee, hire someone to write a message in the sand of various different locations. You would choose which location you wanted to have somebody write a message in the sand. And they’ve got people in Hawaii, they’ve got people in South America, in I think Australia, Costa Rica, Ko Samui, I don’t even know where that is, I’m an American, I can’t find anything on a map! Svatý Kryštof, which I think might just be the Russian translation of the Dominican Republic or something else, so he’s got theses people. Basically you pay a fee, and there are people around the world, waiting for the money to come in and the order to come in. You can go in and tell them what you want. If you want a heart, if it’s Valentine’s Day. They even have a drawing app, you can draw out a little sketch, and then someone will go down to the beach and take a photograph of that and post it up for you to then send over. You could do a photo or video, they’ll do it a stone sign, have musicians signing in the background, like calypso musicians. They’ve just added signs and candles, where they put all these different candles and signs and everything. It’s very cool, very fun. You should really check it out. And that is my fun website for the week. Maybe that will be a trend now; at the end of every podcast I’ll introduce you to a new cool website. I certainly have a ton of them to show you.

So, to wrap up here, we’re about done, remember that I’m giving a talk at SFIMA, at Pubcon, which is a Pubcon summit. Not the official Pubcon in Las Vegas, but it’s at the Nova Southeastern campus in Davie, Florida. And I’ll be speaking on May 14. It’s a day long event that features both day and afternoon, keynote presentation, along with three session tracks, covering the latest social media and search related research. I’ll be speaking in one of those sessions, in one of those tracks, about schema. I’ll also be speaking at the Affiliate Summit East, 2013, which is taking place August 18-20, at the Pennsylvania Convention Center in Philadelphia. It’s a three-day conference that includes an exhibit hall with affiliates, merchants, vendors and networks, as well as multiple tracks of educational sessions, covering the latest trends and information from affiliate marketing experts. I teach at the School of Internet Marketing, and I’ll be teaching a class on web analytics and Google adwords and a couple of others, but the first one that we’re going to get off the ground for me is web analytics. It’s filled with a staff, school of experts in their field and they’re dedicated to providing their experience and knowledge to you as you grow your business. And of course, I’ve written The World of Internet Marketing, which is the first in the three-part series. This book takes the reader on a journey from building an online presence to enhancing your Facebook, Twitter and LinkedIn strategies. For the novice, this book is a stepping-stone into the adventure of online marketing and for the expert this book serves as a refresher for critical areas needed to succeed.

I thank you so much. We’re toward the end of our podcast and I appreciate you listening. Thanks so much.

Previous post:

Next post: