September 21, 2021

You’re the Boss Blog: Is Affiliate Marketing a Useful Tool?

Today’s Question

What small-business owners think.

We’ve just published an article that looks at how the new nexus tax laws affect affiliate marketing companies and the retailers that use their services. The nexus laws say, in essence, that any company advertising through an affiliate marketer — usually an online deal site or blog that publishes ads or coupons and collects commissions on sales that come through them — has to collect and remit sales tax in the states and jurisdictions where the affiliate marketer is located.

The basic idea of the laws is to let struggling states collect more sales tax and to level the playing field between online retailers that usually do not charge sales tax and brick-and-mortar stores that do. But these laws can also be a stake to the heart for a small business that wants to expand its market by advertising through affiliate marketers. The complexity and cost of collecting and remitting sales taxes in jurisdictions around the country is too much for most small companies to face.

Of course, if more states pass these nexus laws, small businesses will have to figure out a solution. Recently, a handful of free and low-cost services have popped up to help small businesses calculate and pay sales tax on their out-of-state sales.

More than 100,000 small retailers, many on eBay and Etsy, use Outright to calculate the state sales tax they owe on transactions processed by PayPal, according to Steven Aldrich, chief executive of Outright Inc. (The basic online bookkeeping service is free and a more complex one costs $9.95 a month.) And the free TaxCloud service from FedTax calculates sales tax in all 50 states and files sales tax returns in the 24 states that have signed up for the Streamlined Sales and Use Tax Agreement.

Of course, the big question is whether affiliate marketing is a useful tool, or whether retailers that use affiliate marketing end up cannibalizing their own sales; that is, do they end up paying an affiliate marketer a commission for sales they would have gotten anyway?

What do you think? Is affiliate marketing a useful tool for small businesses? Is it worth collecting sales tax from states across the country?

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