Affiliate Taxes: The State by State Breakdown

You do realize you need to file affiliate taxes, right?

One of the greatest benefits of operating an affiliate business or eCommerce shop is the ability to earn an income without oppressive sales tax imposed on brick & mortar businesses.

However, in lieu of recent changes by the U.S. and state government, we’re now seeing a dwindling of states that let online income get a pass when it comes to taxes.

The following is a breakdown of the current bills and laws that comprise the taxation on affiliate income. This also includes the states affected (and some still clinging without them enforced).

Affiliate Taxes and the Bills that Matter

The first major bill to make a blow to affiliate marketing taxation is known as the ‘Nexus Bill’ (S.1726) which opened the door for additional legislation. A quick search on Google results in many news stories about states passing a Nexus bill into law.

A secondary bill that has begun to gain a low of political play in the Marketplace Fairness Act which has broader terms and varying levels of taxation depending on the income and type of business one operates. On the smaller scale, this bill will not have substantial effects on online retailers earning less than $500,000 a year yet, if passed, would be a major blow to large retail giants like and super affiliates in the marketing world.

However, we can see that some states are reprising the recent taxation on major online brands (like Amazon) due to their activism in making an appeal through a required level of signatures that brings the bill up to legislation.

Affiliate Taxes

The Effects of Affiliate Taxation

What does all this mean for online retailers and affiliate businesses?

Some businesses have taken it upon themselves to pack up and move across state borders. The affiliate coupon giant FatWallet had moved from Illinois to Beloit whereas Amazon, despite their rebuttal on the California tax, had set up shop in Cambridge which allows the Massachusetts state government to begin taxing their earnings.

These are the big boys of the online business and affiliate marketing world. Let’s ask that question again: “what does this mean for my affiliate income?”

Depending on your location, you’ll most likely find yourself taxed on affiliate income in the near future (unless you’re already in state taking taxes). However, many affiliate networks already have built-in requirements for claiming taxes (such as Clickbank, Amazon Associates, and Adsense) which means the vast majority of affiliate marketers may not see dramatic changes to their business since they have already claimed their earnings and filled the appropriate paperwork.

The States with the Grace

As it stands now, there seems to only be five states that do not have online sales tax imposed:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

It’s safe to assume that if you’re in any of the other 45 states that comprise the U.S. then there are laws, in effect, that requires you to take out sales tax whether it’s simply for buyer’s within the state or across state lines if they have passed one of the aforementioned bills at the beginning of the post.

Over 200 organizations, politicians, online retailers, and leaders have shown support for the new Marketplace Fairness Act which shows the high likelihood that it will be passed within the coming years essentially ending the period of time when there was little or no taxation for affiliate marketing.

Ready to File Those Affiliate Taxes?

The changes to online income through affiliate taxes and bills have profound effects on the affiliate marketing community for those earning a great living from the business model.

Many individuals will not see a major change in their taxes outside of what they’re paying through claiming earnings on their W2. But, there are far greater effects since many affiliates use big online retailers as their affiliate sources (such as Amazon). This could have a coupling effect on sales taxes between the retailers, affiliates, and ultimately the consumer.

However, as glum as these bills may seem, stimulation and fairness for mom & pop shops may lead us into a new age of affiliate marketing. An age where there are broader selections of products and services to offer as these smaller businesses find themselves online and on an equal playing field as online retail giants. We just have to wait and see.