I never really put much effort into my Amazon Associates affiliate program. The truth is that most of what I write about in my freelance writing business doesn’t necessarily tie into a specific product that I can just link to in order to generate referral commissions. On the other hand, there are times when I review a book or recommend software or the like that it was nice to be able to put in an affiliate link to Amazon.com.
Update: If you primarily recommend books or toys or other items that might be available on Barnes and Noble’s website at bn.com you can always sign up for the Barnes & Noble Affiliates program. They have stores in most states, so they are already collecting sales taxes and won’t be affected by things like Colorado’s Amazon tax collection law.
Being an Amazon Associate is beneficial for several reasons. Most importantly, Amazon is not some fly-by-night web business that might end up taking someone I send there for a ride. True, not everyone will have a wonderful experience every time at Amazon, just like any other business, however, it is a respected, well-known, company, and I could hardly be faulted for sending readers their way.
All of this became moot when the State of Colorado tried to blackmail Amazon into paying state sales taxes by passing a law requiring the company to jump through hoops that were deliberately designed to be so burdensome to comply with that the company would just pay the taxes instead. That plan backfired and instead, Colorado residents are not allowed in Amazon Associates program anymore after the company “complied” with the new law by simply not doing any affiliate business in the state.
Today, however, an idea came to me while I was actually working on something else. (Isn’t adult ADD wonderful?)
How To Get Around Amazon’s State Ban
I will mention again that I never earned big money from Amazon Associates, but I did make some money. Some months I managed to earn a hundred bucks. The thing is, I never got a check.
That is, Amazon did not pay by mailing me a check to my address in Colorado. Rather, I the money earned from Amazon affiliate links was paid via direct deposit into my business checking account.
In other words, I don’t have to “live” in Colorado at all as far as Amazon is concerned. Wyoming is just an hour and a half drive to the north. It’s probably two hours to Cheyenne. In a single day I could drive up to Cheyenne, open a business checking account in Wyoming, get a post office box, or some virtual office mail service so I can put Wyoming address down as my location.
In fact, it is even easier than that. I could sign up for an online checking account, and an online virtual mailbox service with an address anywhere except Colorado, and viola — a non-Colorado Amazon Associate earning referral fees just like the rest of the country.
As long as the intention is not to conceal the source of monetary funds it is not money laundering. Technically, it would be non-payment of Colorado taxes, however, every purchase made online technically has state sales tax due on it. It’s just that the business selling the product can’t be made to collect sales taxes for a state it has no “nexus” in. Instead, the law says that the person who purchased something still owes the sales tax and is required to pay it. Of course, as a practical matter that never happens.
As of now, I haven’t put my plan into motion, and I probably won’t ever bother. It simply never has been enough of a money maker for me to put the effort into it.
However, if that ever changed for me, or if you live and Colorado and want to sign up for Amazon Associates, it wouldn’t take much to be able to get around the Colorado law that forced Amazon to abandon affiliates who are residents of that state.
Thank you for this discussion. If you are already registered in CO then would it best to close the CO registration and open in WY? Or start a second biz in WY? Is this a tax law question or a tax filing question for an EA?
thanks
Casey
Do you have any update on this matter? I live in CO.
Would like to do the affiliate program with Amazon and Fabric.com The former is the parent company of the latter. Fabric.com does not accept affiliates from our neighboring state of WYO either. In fact here’s the list of states that Fabric.com (and presumably now Amazon) accept affiliate applications from (note: Oregon, which doesn’t collect sales taxes is not on Fabric.com/Amazon’s acceptable list)
Arizona, California Connecticut Florida Georgia Illinois Indiana Kansas Kentucky Maryland Massachusetts Minnesota
Nevada New Jersey New York North Carolina North Dakota Ohio Pennsylvania Tennessee Texas
Virginia Washington West Virginia Wisconsin.
B&N for the books and other resources … but the fabric affiliate thing is a huge issue.
I registered the LLC in Texas and checks are currently being mailed there. I am hesitant to change it to direct deposit into my CO bank acct because I’m thinking the state-specific routing number will flag this. What are you thoughts?
I’m not sure how much effort Amazon puts into this. Besides, plenty of companies are headquartered in one place and process payments and checks in another. My doctor’s office payments go to somewhere in Texas even though the office is here in Denver.
Too many sellers & new biz owners get “sales Tax” & “income tax” mixed up & think they are one in the same. This law has absolutely nothing to do with State INCOME tax.
Colorado says… “amazon – since you have affiliates in Colorado, we consider this a “presence” here & all sales made to Coloradoans, YOU are responsible to pay us SALES tax”….
Amazon replies with a “screw you, no more affiliates in Colorado, Now we have no “presence there” & we don’t have to pay CO any SALES TAX”.
That is sort of the simple way of putting it since the actual law is SO screwed up that NO ONE can comply.
Any income derived from an affiliate of any kind (all posters, Zazzle, B&N etc) is usually 1099d & you add it to your Federal INCOME tax 1040 form. THOSE NUMBERS gets put on to the Colorado INCOME TAX form. So we are STILL paying our fair share of income tax.
Right. But our income tax isn’t what the state wants. It wants those sales taxes since us affiliates pay “only” a 5.43% income tax, and we whittle that down with expenses and deductions.
My point was that by going to Wyoming, a quick 1 hour drive, I could have an address there and thus be a Wyoming affiliate instead. Ironically, the law was recently struck down in court, but there hasn’t been any re-initiation of Colorado affiliates. Even more ironically, Amazon is essentially agreeing to do exactly what Colorado demanded except in Texas, which represents a much bigger piece of Amazon’s earnings. They will apparently be playing ball in California in a few years as well.
In the meantime, if you don’t want to run over to Wyoming, you can use either Skimlinks or Viglink to handle your affiliate links for you. They are the affiliate (not you) and then they take a cut. Theoretically, you come out even because they are bigger affiliates than you are on your own so they get higher commission rates. Not sure if it really works out or not.
Thank you very much for this information, it will be very very useful to me. I followed a link in the warrior forum about this Colorado tax topic. Amazing what can be made. Thanks a lot!
This is a very good post, and there are places within Wyoming who will be the business presence for you for a fee.
Affiliates, of any company, can’t be considered a nexus of the company because they are operating as a distinct business entity and are not employees of the company. Affiliates are responsible for their specific taxes and how they run their affiliate business.
You would like to think that about affiliates, but the law says otherwise. I’m sure someone could try a court case but no one is going that route. Instead, Amazon just cut Colorado off.
John is correct. States base potential taxes owed on a legal concept called nexus. Any economic engine in a state can create a nexus claim empowering a state to issue bill for taxes owed. Moving to a PO box in a neighboring state doesn’t eliminate a state’s possible nexus claim, but such a claim is moot in your case since you pay CO state sales tax and you are correct Colorado’s (and my state of North Carolina) problem is with Amazon and its millions in sales not individual affiliates. Affiliates are merely the tool being used to claim nexus in a vain attempt to make Amazon pay.
States are tripping over thousand dollar bills to pick up pennies, but they are broke and so casting around for any port in a storm. In NC it is easy to see why Amazon is a target. I live a stone’s throw from Duke, UNC and NC State where students buy their text books from Amazon. Easy to see why NC wants Amazon to pay state sales taxes. Barnes and Noble will NEVER pull affiliates. B&N already pays state sales taxes since they have brick and mortar stores in all states creating nexus. Amazon’s affiliates are the only (bogus) nexus states can tap so they are.
My suggestion would be to avoid solving the Amazon Associates problem for two reasons. 1. It is messy and why get involved for so little money. 2. Amazon is the best e-commerce marketer on the planet who wants traffic to buy from them not you and they will use their considerable skills to move traffic you send them onto their books since it is cheaper to make sales that way. B&N is much less skilled with the “people who’ve bought X also enjoy Y NetPerceptions pitch so you might get 2, 3 or even 4 bites at your traffic before they forget what moved them to B&N in the first place.
Good post, good discussion and I will join you in probably never creating a work around for NC’s recent ban.
Martin (@ScentTrail)
Mr. W G Hubris,
I understand what you are saying. I believe I will put that into practice. You ARE a genius.
And I believe that the issue is AMAZON, not the people of the state of Colorado. I will still be paying MY taxes. Amazon just didn’t bother with it.
Actually, now Colorado legislatures must think again before they try to use an upraised hand against Amazon, who seems to have been a blessing to us Coloradans. I don’t blame Amazon too much. I may have run from the taxes as well if I were in their position. Colorado Legislatures need to consider what they did and change it back possibly, because they killed 4000 jobs in one day, not Amazon.
Fatwallet.com, an Illinois based affiliate gateway (a website that shares a large percentage of the affiliate referrals received from merchant sites with the buyer that clicked through the gateway) up and moved from IL to WI over this issue. I believe Fatwallet had collected over $30mm in affiliate referrals to date, so it was well in their interest to move operations (and most of their 100 employees) out of state. Genius move, legislators. Lose jobs and tax revenues to the state, add zero sales tax collections.
But here’s the problem…Amazon has to report the money they send you, and you have to report it on your tax returns, one of which will be a Colorado tax return.
Really, the problem isn’t even where you live, or receive the checks. It’s where you file your taxes.
Anne
Anne,
Actually, that isn’t a problem, at least not in Colorado.
Colorado income taxes are a one-page form that is based on your Federal Income Tax returns. All of the math and deductions and reporting and so on happens on your 1040. Then, you take one of the numbers from your 1040 and put it in your Colorado Income Tax forms. You see, I have been paying taxes on my earnings from Amazon all along because they kick out a 1099 that goes to the IRS (and to me). It is AMAZON who isn’t paying Colorado taxes.
There is no law making it illegal for me to be an Amazon associate or to earn money from doing so. The law compels Amazon to pay sales taxes based on what people buy from them, not from what they pay to me. In fact, there is no more money to be collected there. Amazon is a business and doesn’t pay income taxes. This is all about retailer sales taxes.
All I have to do is get around Amazon cutting me off. Colorado may have forced Amazon’s hand, but they didn’t restrict me.
What MIGHT be a problem is that by earning the money in another state, I might be liable for taxes there, but in this case, Wyoming does not have income taxes, so I would be in the clear.
Thanks for your comment.
Ever heard that saying, “the only things certain in life…”? States tend to have agreements or frameworks set-up to determine who gets to collect what, and if you’re a Colorado resident with an accounts receivable in Wyoming I’m pretty sure that Colorado would certainly claim to be owed something out of that income. Rigorously speaking a business conducted in virtual space shouldn’t be subject to any local jurisdiction, what’s important are physical transactions or activity, but because you have physical presence (that is, yourself) in a state, that state would probably claim a due anyways. You could probably incorporate and have that organization in another state, such as Wyoming, and then move the money into a personal account still in Wyoming, but any drawings, salary, or wages thereof would be personal income, subject to taxation in your state of residence so long as it has personal income taxes. Note this is not legal advice or counsel or anything like that, just personal thoughts on the matter (“opinion”) that would, I think, hold up to scrutiny by the Colorado Tax authorities or lawyers who practice in this area.
I am not trying to avoid paying MY taxes. Colorado is trying to make AMAZON pay taxes. Even using this method I would still pay Colorado income taxes on the money I earned. For Colorado income taxes you take your adjusted gross income number from your completed 1040 form and put it on your Colorado tax form. Then, you add / subtract based on a couple of Colorado deductions and credits. It’s a one page form.
The trick here is to get Amazon to let a Coloradoan into the affiliate program, not to avoid paying my taxes. Everything else on MY end is legit. I pay taxes on the earnings because Amazon will send me (and the IRS) a 1099 Form that I will include on my Schedule C, which is reflected on my 1040 tax form which is used to determine my income for Colorado taxes. I do nothing wrong, nor do I skip paying any taxes. I just tell Amazon that I am from Wyoming. Everything else is the same.
I live in Illinois and it looks like we will be in the same boat as Colorado within a couple weeks. I’m not sure this work around would work but I would like to know more about what Colorado affiliates are doing now. If anyone has a real work around I would love it if you dropped me a line.