I received this rather frightening email from Amazon this week:
Hello, For well over a decade, the Amazon Associates Program has worked with a large number of Arkansas residents. Unfortunately, a new state tax law signed by Governor Beebe compels us to terminate this program for Arkansas-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers – including but not limited to those referred by Arkansas-based affiliates like you – even if those retailers have no physical presence in the state. We opposed this new tax law because it is unconstitutional and counterproductive. It was supported by big-box retailers that seek to harm theaffiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that its enactment forces this action. The unfortunate consequences of this legislation on Arkansas residents like you were explained to the legislature, including Senate and House leadership, as well as to the Governor’s staff.
As a result of the new law, contracts with all Arkansas residents participating in the Amazon Associates Program will be terminated on July 24, 2011. Those Arkansas residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM orSmallParts.com. Please be assured that all qualifying advertising fees earned on or before July 24, 2011 will be processed and paid in full in accordance with the regular payment schedule.
You are receiving this email because our records indicate that you are a resident of Arkansas. If you are not currently a resident of Arkansas, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state after July 24, 2011, please contact us for reinstatement into the Amazon Associates Program.
To avoid confusion, we would like to clarify that this development will only impact our ability to continue to offer the Associates Program to Arkansas residents and will not affect their ability to purchase from www.amazon.com.
We have enjoyed working with you and other Arkansas-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to Arkansas residents.
The Amazon Associates Team
Wait, what? When you think of states with anti-business climates, Arkansas doesn’t typically pop to the top of the list. Nonetheless, it seems my state has passed a law that resulted in Amazon shutting down all affiliates in the state.
The Main Street Fairness Act
SB 738, the “Main Street Fairness Act“, passed through both houses of the Arkansas legislature with little fanfare and even less resistance. The stated purpose of the bill was to level the playing field between physical retailers and those who sell online, by attempting to force out-of-state online businesses to collect and remit sales tax on sales inside the state. The only way they could do that, though, is to prove that the company had a physical presence in the state – which, of course, Amazon does not. SB 738 creates a new concept called a “nexus”, where an individual affiliate (selling more than $10,000) is now considered equivalent to an office of the company for the purposes of taxation. Rather than keep records of all of their affiliates and potentially expose themselves to a sales tax liability on all sales in the state, Amazon has terminated all Arkansas affiliates, effective July 24, 2011.
I don’t blame them. The Solution
I have been making a growing trickle of income from Amazon, and would like to continue doing so. I live very near the Missouri border, so my first impulse was to get a mailing address there and change my contact information on my Amazon profile. After some reading, though, Amazon specifies that “Residents of the following states…” are ineligible. Even with a MO mailing address, I am still a resident of Arkansas. Worse, in speaking with my accountant, I was told that routing my affiliate checks through a mailing address in another state may very well qualify as tax evasion. Yikes!
There is another option available, though – an out-of-state LLC. By establishing a company outside of Arkansas – with a physical presence there in the form of a registered agent – the company would be able to maintain an affiliate account through Amazon. The fees for doing this aren’t trivial – about $200 to start, and $300 / year to maintain – but they are more than worth it if you’re making significant income from Amazon and would like to continue.
Nevada and Delaware are the two most popular choices for incorporating an out-of-state LLC. I chose Delaware, due to the fact that Nevada has had a similar online sales tax law introduced in their last legislative session – besides, Delaware LLCs are cheaper to maintain, though not by much. Finally, I went with LegalZoom for both the establishment of my LLC, and to act as my registered agent. Click Here to get back on the road to profit by establishing your own LLC.