Making Money, And Paying Taxes, One Click At A Time
By Cliff Ennico
www.creators.com
"Do you have any thoughts on the legal and tax aspects of 'affiliate marketing' - when you use your website to sell other people's products through Clickbank or other affiliate sites? This system creates a link on your website where the customer doesn't actually see content on your site but goes through it directly to Clickbank's site and you are paid a portion of the sale for the link to Clickbank's website."
There's nothing new about affiliate marketing - it's been around as long as the Web itself. Basically, by becoming an "affiliate" of another website, you become a "sales representative" of that website - you help that website sell their stuff and if they make any money from a customer who clicks on the "affiliate link" on your website, they pay you a commission.
Websites like Clickbank take this process to a different level. Think of Clickbank as an intermediary between websites that are looking for affiliates to help sell their stuff (usually digital information products such as e-books), and people who want to be affiliates. For example, if I had a digital e-book (I don't, at least not yet), I could become a "Clickbank publisher" and allow Clickbank to sell my e-book, either directly or through its affiliates.
Now, let's say you fall in love with my e-book and want to sell my book on your website. You would set up a Clickbank account, tell them you want to sell my book, and create a link to the Clickbank website. If someone clicked on the "Cliff's book" link on your website, Clickbank would process the order, collect payment from the customer, pay you your commission, pay me the rest (less Clickbank's fee, currently 7.5%), handle refunds, issue IRS Form 1099 at the end of each year, and provide other services. With Clickbank and other similar sites you can offer a whole bunch of other people's stuff to your customers and get sales commissions without having to lift a finger. Pretty cool, huh?
But there's a catch (isn't there always?). When doing business with Clickbank or any other affiliate site, the words "drop shipper" should pop up in your head immediately. Whenever you are selling someone else's stuff but don't actually take possession of it, and that someone else handles all of the order fulfillment tasks (the shipping, handling, packaging and so forth), you are a "drop shipper" for legal and tax purposes.
Full disclosure: I'm not a Clickbank scholar, and I haven't studied their website in detail. But a quick look at their operation leaves me with the following questions, which you should ask if you're planning to become a Clickbank "affiliate".
Sales Taxes
. By becoming a "Clickbank affiliate" for one of Clickbank's "publishers", you are creating a three way business relationship between you, the information publisher, and Clickbank itself. This means someone will have to collect sales taxes whenever any of the following people click on your "affiliate" link and order from Clickbank:
people who live in the same state you do;
people who live in the same state the information publisher is located; and
people who live in Idaho (where Clickbank has its headquarters), Colorado (where Clickbank has an office), and any other state where Clickbank has a physical location or "nexus" for tax purposes.
Will Clickbank keep track of this, by charging the customer sales tax and remitting it to the appropriate state tax authority? Or is that your responsibility (or the publisher's)?
Legal Claims
. Let's say someone clicks on your "affiliate" link, downloads my e-book from Clickbank's website, and discovers to his horror that I've invaded his privacy by disclosing all the lurid details of his private sex life. Clearly, as the publisher of this e-book I am legally responsible for its content, and will have to indemnify Clickbank (defend the lawsuit at my own expense, and pay the judgment if the customer wins) in case the offended reader sues them. But where do you, the poor "affiliate", stand in all this? Since the reader ordered the book from your website, you are in the "chain of sale" and may well be sued along with the rest of us. Is anyone indemnifying YOU if that happens?
"Pyramid" Schemes
. Clickbank allows its "affiliates" to set up their own "affiliate" programs where other websites (let's call them "sub-affiliates") can create a link to the affiliate's website which automatically links to Clickbank's website (getting dizzy yet?), with everyone in the upstream affiliate "chain" getting a piece of the purchase price each time something is sold.
If these programs aren't set up properly, there's a risk that you will be creating an illegal "pyramid" scheme where people get commissions for bringing on board sub-affiliates who aren't actually selling anything. Make sure a good lawyer helps you set up your "Sub-Affiliate Agreement" to make sure you're not caught between a rock (angry sub-affiliates) and a hard place (Clickbank and its legal team).
Cliff Ennico (
cennico@legalcareer.com
) is a syndicated columnist, author and host of the PBS television series 'Money Hunt'. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state. To find out more about Cliff Ennico and other Creators Syndicate writers and cartoonists, visit our Web page at
www.creators.com
. COPYRIGHT 2008 CLIFFORD R. ENNICO. DISTRIBUTED BY CREATORS SYNDICATE, INC. Permission granted for use on DrLaura.com.
