If You Are A California Startup, The Fate Of Your Company May Be Decided Tuesday

23 May 2011

Tags: affiliate tax affiliate marketing california startups stupid politicians jerks

Many thanks to Robert Scoble for the RT and blog post! Writing an update on how last Tuesday went. You can also find this on Hacker News here and I just posted an update on sb234.

Yes, I’m completely serious about that headline.

So, here’s the situation:

I’ve been an affiliate marketer for a number of years before creating a new startup. One of the reasons I did this was to lessen the risk of the stupid Affiliate Tax laws from harming my business.

Anyway, after all this effort, the California State Senate came along and introduced SB234 (read the text here: http://leginfo.ca.gov/pub/11-12/bill/sen/sb_0201-0250/sb_234_bill_20110209_introduced.html )

Here’s a quick summary of this bill:

• The goal of this bill is to establish through as many means possible that an out-of-state retailer has “nexus” - a physical presence which requires them to collect California sales tax.
• Nexus is defined in this bill as “Any retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, delivering, installing, assembling, or the taking of orders for any tangible personal property”
• The result of this bill is that any out-of-state retailer will not have to collect sales tax if they sever business relationships with a large swath of contractors, service providers, ad networks and affiliates that have a presence in California.

What does this mean for you?

• If you are a company that in any way makes a commission or markets on behalf of another company as your monetization, you are in danger.
• If you are a contractor, web host of some kind or other service provider that is even peripherally facilitating the sale of a product in any fashion, you are in danger of out-of-state retailers canceling their contracts. This could include web design, web hosting (including out-of-state hosts with a server in California), coding, mobile apps, you name it.
• If you have any manner of advertising for out-of-state retailers, they will likely cancel any budget with you as advertising online itself could qualify as nexus.

Who supports this bill in the CA Senate?

This bill was sponsored by Senator Hancock (Berkeley district, Democrat) and all votes have been on party lines (Democrats Aye, Republicans Nay). This bill is heavily lobbied by Walmart, Best Buy, Target and Home Depot who have thrown huge amounts of money behind this.

Here is the most recent Senate vote tally:

Ayes - Elaine Alquist, Ellen Corbett, Kevin De Len, Mark DeSaulnier, Noreen Evans, Loni Hancock, Ed Hernandez, Christine Kehoe, Mark Leno, Ted Lieu, Carol Liu, Alan Lowenthal, Gloria Negrete McLeod, Alex Padilla, Fran Pavley, Curren Price, Michael Rubio, Joseph Simitian, Juan Vargas, Lois Wolk, Roderick Wright, Leland Yee

Nays - Joel Anderson, Tom Berryhill, Sam Blakeslee, Ron Calderon, Anthony Cannella, Lou Correa, Robert Dutton, Bill Emmerson, Jean Fuller, Ted Gaines, Tom Harman, Bob Huff, Doug La Malfa, George Runner, Tony Strickland, Mimi Walters, Mark Wyland

The Strategy of the Bill:

This bill is very open-ended in order to give as much leeway as possible for interpretation. The strategy is to let the actual enforcement be decided upon by the personalities on the Board of Equalization without any clear definition of nexus.

What You Can Do:

I’m going to be personally trying to drum up opposition for this bill tomorrow in Sacramento along with several other members of the Performance Marketing Association. The best thing you can do to help is reply with your company name, url, number of employees and where you are located along with whether you oppose or whether this will actively harm your business.

Many politicians have been going on about how tech businesses are the future of California. Right now we need you to speak up about this so we can get them to listen. Many of the politicians directly in favor of this bill are the very ones who were elected in your districts!

_ UPDATE _

So, with the help of the Performance Marketing Association, I went to a lobby day to drum up some opposition to this bill. Overall, things went alright and we got some good responses, but the bill itself is still in play. Right now the most critical thing is getting startups AND VC’s to voice their opposition to the bill and how it can hurt them. If you want to help out, please tweet at me (@kzorz) with the hashtag #nosb234 and I’ll follow up with you.

There will be a hearing later in June, so the more people that show to tell the legislature how bad this bill is, the better the chance we can kill it!