Early in 2009 for Clickbank and many other affiliate networks, several things changed about the affiliate marketing world in the United States.
Many state governments, starved of revenue because of the drastic reduction of other traditional taxes, began hunting desperately for new revenue sources.
And one of the places many of them have hit has been affiliate marketing programs, where they have begun to demand that the amounts people receive from others buying a product through a link on their own blog must be taxed.
Some Affiliate Networks Including Clickbank Have Refused This Money Grab…
The responses to this have often been very strong. Some affiliate marketing programs have refused to allow this tax grab, and have simply terminated their relationships with affiliate marketers living in the states that have enacted these tax laws.
So for example, in June of 2009, Amazon denied North Carolina the money it thought it would get from Amazon’s affiliates, by terminating affiliate programs in that state.
Overstock.com did the same thing in July, denying North Carolina, Hawaii, and Rhode Island the tax money those states were trying to acquire. So these states’ efforts to get this extra money not only backfired, but adversely affected their citizens as well.
How Clickbank Conformed To The Tax Laws
ClickBank, however, has taken a somewhat different route. This organization has always tried to cooperate with the various tax laws in the jurisdictions in which its affiliates operate, rather than circumvent them.
For example, any digital products sold to buyers living in the European Union (EU) are subject to a Value Added Tax (VAT), which must be paid to the country in which that buyer resides. ClickBank has been collecting and paying this tax ever since it was instituted.
The company’s arrangement with the vendor of any product is that the vendor actually sells the product to the site for a wholesale price and receives the retail profits back. This means that ClickBank, as the owner of the product, is responsible for collecting the VAT from European Union residents, and paying that tax in the right EU country.
The company has done this all along, and the practice even explains some variations that marketing affiliates sometimes see in their commissions for a single product. If the product is bought by an EU citizen, the taking of the tax will slightly alter the commission paid.
With new tax laws on affiliate marketing income gradually being instituted in U.S. states, ClickBank is trying to be equally cooperative. Rather than discontinue any relationship with marketers living in the affected states, as Amazon and Overstock did, it tries to help them comply with the laws.
It doesn’t collect these income taxes from them, since they are essentially “self-employed” when it comes to the marketing program, but it does give them links to the IRS site where they need to get their Tax ID number. It also explains some of the ins and outs of filling out the correct forms at tax time, and a few of the tax requirements.
Some people feel that affiliate marketing profits should not be regarded as income in the traditional sense, and resist the idea of paying taxes on it. However, ClickBank has always attempted to maintain good relations with any country where its affiliates live, and has tried to be more cooperative.
Rather than disown the marketers who are now subject to extra taxes through no fault of their own, it tries to help them as much as possible, so they can continue to benefit from their marketing but still stay on the right side of the tax laws.
The fact that Clickbank has chosen to adjust to the new tax laws while other networks simply dump their affiliates in affected states to me shows the dedication to their affiliate.
It is completely unfair and just wrong for an affiliate to spend months and even years working with a network to build up an income and then have it taken away for something beyond the affiliate’s control.
While I do not live in any of the states affected by the recent tax law changes, I can rest easy knowing if something comes up, Clickbank has my back.
Hi Michael and welcome to AffiliateXfiles..
Yes clickbank is really starting to become the affiliate network of choice, it not only looks after its affiliates but has some good protection for the vendors as well.
As for tax it was just crazy how some affiliate networks simply told their affiliates who were going to be affected by these tax changes that their services were no longer required and just left them out in the cold. For me this is complete stupidity but it just goes to show that they are making so much money that they become complacent about those that have made them all that money which is of course the affiliate marketer.
This is a nice way for Clickbank to handle this. It stink for affiliates with companies such as Amazon, that were forced to close up shop, after years of hard work…its’ just not right.
I would have to agree with you there were many people who had built upo a very large business using those affiliate networks only to have their accounts closed.
The motto to the story here is you really need to diversify to avoid getting caught like this. For those that were earning big dollars it might have been more beneficial to just move states if they could, but I don’t believe there was a lot of warning that this was going to happen.
Thanks for the great post about ClickBank and taxes. Your post brought up a lot of interesting points that I haven’t thought about. I like how ClickBank isn’t just dumping states but adjusting how they operate.
Hi Pete and welcome to our blog…
Yes clickbank spend a lot of time looking out for not only their affiliates but also their merchants which can only lead to good things for them… As for the taxes it is very unfortunate for those that got caught up in all of this and hard their accounts closed.
For this reason that’s why it is always good to be diversified with different affiliate networks and even promotions.
Mike - First Lite says
Affiliate marketing profits should definitely count as income – after all, you are bringing in money for work that was performed. It’s as cut and dry as that! So, I would agree that taxes should be paid on any money brought in from affiliate marketing programs.
Hi Mike… and welcome
Nobody is disputing that you need to pay tax when you generate an income from affiliate marketing… What was happening though is the affiliate networks were being asked to withhold money as tax payments, the result was they terminated anyone in those states from participating in any of their programs simply because they did not want to withhold money for tax.
The identification of the affiliate marketing industry as target for taxation is an unspoken testimony to the growth, popularity and financial enormity this industry represents. As states tread gingerly into this terrain questions of unconstitutional taxation will undoubtedly continue to arise. If juggling attempts with the constitution continue, the cancellation of additional affiliate programs may occur and the loss of affiliate income taxes will be felt. At this point it is hoped that corrective measures will be taken and the norm will be re-established. For the time being the states desperation to shrink their deficits may continue to tempt them to uncover taxation opportunities that sometimes don’t really exist. The affiliate marketing industry on the other hand will still thrive and grow as new programs develop and thus continue to prove to be a great way to earn money online.
Thanks for your insights Pat…
And yes I am with you, hopefully this will all settle down and the easy money grab will stop, letting us all get back to business.
Hi Pat and Welcome…
Thanks for you great insight into this… and yes hopefully it all settles down so affiliates can focus on building their business.
Affiliate marketers will also do their share in making your business grow more by the day. They will contribute to your business’ visibility in the search engines and will make your sales grow.
Of course as an individual, you can also go so far when it comes to promoting and advertising your product. Affiliate marketers will be able to reach people who are beyond your reach. Come to think of it, if you are a vendor with a pool of affiliate marketers, it would be like having a team of people doing the promotions, advertising and selling for you.
Furthermore, you get free advertising! Payment for affiliate marketers will only be made if they are able to close a sale. In the process, the affiliate marketers will do the promotions for you.
Yes if done correctly and without to much B.S affiliate marketers can be a very good asset to any online business. They not only find many different ways to get your product noticed online but also into niche markets that maybe you had not considered. And all the vendor needs to worry about is ensuring that the affiliates are paid for each sale they make.
No sale no money is paid there really is not a better way to market a product for many small vendors.
Jac Evans says
Tax is necessary to continue the state well. The country of people who pay the tax regularly.the country become rich and who are not paying, they must be poor.
i am questioning whether or not to start an affiliate website in North Carolina ( NC) with many of my store products being from Clickbank. With NC being one of the states with this Affiliate “nexus’ Tax- I understand that I am not really too affected by it unless I exceed $10,000 in sales ( which I would like to do). But the question I have with my website is, if someone buys an item from Click bank through a link in an add ( banner etc )on my website and that person lives in a state- (there are up to about 25 now that have this Affiliate tax) where this tax law exist- taxes can get complicated when you may be subject to various differing state tax laws. Is that an issue with selling Click bank products when you begin to be making $10,000 plus.
Another words, are there additional taxes to be paid to various states in addition to the taxes you will pay to the feds for your affiliate profits under this “new” affiliate tax program?
Thanks for you information about this,