Missing Links Stunt L.A. Sites

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Missing Links Stunt L.A. Sites
Savings.com is among several Los Angeles-area ecommerce sites adversely affected by California’s new online sales tax law.

It’s known as the Amazon tax, but the new California law that requires online retailers to collect sales taxes is affecting more companies than just the Internet sales giant.

West L.A.-based Savings.com has lost more than 50 affiliated online retailers and Santa Monica-based SurfMyAds.com has lost 150. Gone are Amazon.com, Zappos.com and Overstock.com, among others, as many major online retailers have cut ties to California-based marketing companies since the law took effect July 1.

“Losing 50 big guys hurts a lot,” said Loren Bendele, chief executive of Savings.com. “We work with thousands of online merchants … but the top 150 online retailers make up a huge percentage of sales.”

Savings.com and SurfMyAds are affiliate marketing companies. They plug products from online merchants and, in turn, get a cut of the sales when customers buy.

Under the new law, signed by Gov. Jerry Brown in June, an out-of-state merchant’s relationship with an affiliate marketer in California would obligate that merchant to collect California sales taxes. That has spurred many online retailers to cut ties with their affiliate marketers in the state to avoid collecting taxes.

Amazon announced in June that it would end its agreements with about 10,000 California affiliates, and that got a good deal of attention. However, hundreds of other retailers, including vacuum-cleaner maker Dyson, jewelry merchant Blue Nile and outdoor outfitter Cabela’s, also have ended their affiliate agreements in California.

Affiliate marketers make their money by getting customers to buy from their partner merchants, often by offering special deals.

For instance, go to Sears.com and you can find a pair of black wingtips from Savile Row on sale for $139.99. Go to Savings.com, though, and you’ll find a coupon for discounts on men’s shoes at Sears. Click-through to the Sears site, enter the coupon code that knocks off 15 percent and the price falls to $118.99.

Sears will pay Savings.com a commission for the sale. Commissions generally range from 4 percent to 8 percent, though they can be as low as 1 percent or as high as 40 percent.

“Come to our site to find the best deal, go to the merchant and buy something with that deal, then the merchants pay us based on a percentage of the sale,” said Savings.com’s Bendele.

As a result, losing their agreements with dozens of big merchants will mean pain for affiliate marketers.

Alexis Caldwell, director of affiliates and partner marketing for SurfMyAds, wouldn’t put a figure on what the loss of merchants will mean for the company, but she described it as “definitely significant.”

A spokeswoman for Savings.com said the company is still analyzing the impact but an early estimate is a loss of between 10 percent and 20 percent of the company’s revenue. Savings.com employs 90 workers, up from 40 a year ago.

“We’re still analyzing the impact to figure out what our options are,” Bendele said. “We were a fast-growing company in Los Angeles. … We’ve been doubling in size almost every year. This is going to significantly hit our business. All my competitors not based in California don’t have to worry about this.”

Companies with a physical presence or “nexus” in California – anything from a corporate headquarters to a small storefront – already had to collect and pay state sales tax for online sales made to Californians. Bookseller Barnes & Noble, for instance, has to collect sales taxes for online purchases by California residents because it has stores in the state. The new law changed the game by saying that the tax is triggered by not just brick-and-mortar locations, but working with affiliates in California.

Proponents of the law say it’s a matter of fairness and that it will take away some of the advantage online retailers have over brick-and-mortar merchants.

Amazon has announced that it will seek a referendum to overturn the law, a move supported by local affiliate marketers.

Caldwell of SurfMyAds said the law won’t force out-of-state retailers to collect taxes. Retailers will simply end their affiliate agreements, hurting the affiliates but leaving the state with no additional revenue.

“As far as (retailers) changing their policies to collect taxes on California purchases, that’s not happening,” she said. “Really, as affiliates, we are being victimized and our businesses are being jeopardized for no additional revenue for the state.”

Though Amazon and other major online merchants are pulling out of their affiliate agreements in California, Caldwell said SurfMyAds will continue with its launch of an affiliate marketing site.

She said SexyLingerie.com, which will debut sometime in the next three weeks, has agreements in place with several merchants and that only a few canceled agreements because of the new law.

Because the site focuses on lingerie, which is sold mostly by department stores and other merchants that have stores in California, Caldwell said the new law hasn’t been much of an issue.

“There are a lot of merchants that were already collecting tax and remitting it to the state of California,” she said.

There are also merchants and marketing companies that might look to a different type of online marketing to get around the new law.

Savings.com and SurfMyAds are paid on what’s called a cost-per-acquisition basis, meaning they are only paid when a purchase is made. Other online marketers are paid on a cost-per-click basis, meaning they are paid simply for driving traffic to a merchant’s site.

That type of marketing isn’t affected by the new law, which could make it attractive to marketers and retailers, Caldwell said.

“Especially as this comes up not just in California but in other states, we’re going to see merchant partners and some affiliate networks offer this as an alternative,” she said.

But Bendele of Savings.com said he has brought up cost-per-click marketing to online merchants and they weren’t interested. They assume cost-per-click will be the next target of Sacramento.

“Some merchants say they can’t be near working with any site working in California,” he said. “They won’t do (cost-per-click) either.”

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