Whether affiliate marketing is your “day job” or just a supplemental income; there are several factors that should be considered when deciding the best place to establish and run your performance marketing business.
I was recently reading an article about the best states to make a living in and it got me thinking: what are the best states to make a living as an affiliate marketer? While the article I was reading evaluated: average income, cost of living, state income tax rate, and state unemployment rate; I didn’t find it relevant for affiliate marketers who are both entrepreneurs and business owners.
In recent years, ‘Affiliate Nexus Tax’ laws have become the main driver behind which state affiliates should reside in. Newly proposed federal sales tax reform, if passed, will enable affiliates to approach this topic more strategically as a business owner.
Like any business owner corporate tax, personal income tax, and state sales tax rates are all key factors for affiliate marketers when making this decision. After doing some research I discovered a report The Tax Foundation publishes each year called the State Business Tax Climate Index, which provides more insight into the subject and ranks each state based on several tax components.
According to their website, the “State Business Tax Climate Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare.” I found their report to be comprehensive and thought it would be interesting to compare the states that rank in the top 10% with the states that rank in the bottom 10% and how affiliate nexus tax fits into the equation.
Top 5 States
(Note: a rank of 1st is best in the rankings below. For the Business Tax Climate Index, the higher the score, the more favorable a state’s tax system is for business.)
1. Wyoming
Business Tax Climate Index: 7.67
Corp. Tax Rank: 1st
Individual Income Tax Rank: 1st
Sales Tax Rank: 13th
Affiliate Nexus: No
2. South Dakota
Business Tax Climate Index: 7.54
Corp. Tax Rank: 1st
Individual Income Tax Rank: 1st
Sales Tax Rank: 34th
Affiliate Nexus: No
3. Nevada
Business Tax Climate Index: 7.45
Corp. Tax Rank: 1st
Individual Income Tax Rank: 1st
Sales Tax Rank: 42nd
Affiliate Nexus: No
4. Alaska
Business Tax Climate Index: 7.36
Corp. Tax Rank: 27th
Individual Income Tax Rank: 1st
Sales Tax Rank: 5th
Affiliate Nexus: No
5. Florida
Business Tax Climate Index: 6.90
Corp. Tax Rank: 12th
Individual Income Tax Rank: 1st
Sales Tax Rank: 19th
Affiliate Nexus: No
While the states that ranked in the top 10% may not have been the states I would have anticipated, it appears that they all share a common strength: an effective tax system designed to attract and retain businesses, like affiliate marketers.
When I began to analyze the states that ranked in the bottom 10%, I discovered there was a strong correlation between those states and affiliate nexus tax. In fact, the states that ranked in lower 10% had the highest concentration of affiliate nexus tax laws being passed.
Bottom 5 States
46. Rhode Island
Business Tax Climate Index: 4.18
Corp. Tax Rank: 40th
Individual Income Tax Rank: 36th
Sales Tax Rank: 24th
Affiliate Nexus: Yes
47. Vermont
Business Tax Climate Index: 4.17
Corp. Tax Rank: 41st
Individual Income Tax Rank: 47th
Sales Tax Rank: 14th
Affiliate Nexus: Yes
48. California
Business Tax Climate Index: 3.71
Corp. Tax Rank: 43rd
Individual Income Tax Rank: 50th
Sales Tax Rank: 40th
Affiliate Nexus: Yes
49. New York
Business Tax Climate Index: 3.59
Corp. Tax Rank: 23rd
Individual Income Tax Rank: 49th
Sales Tax Rank: 37th
Affiliate Nexus: Yes
50. New Jersey
Business Tax Climate Index: 3.33
Corp. Tax Rank: 39th
Individual Income Tax Rank: 48th
Sales Tax Rank: 46th
Affiliate Nexus: No
The state of Illinois was also mentioned in the report. While ranking in the middle, Illinois moved most dramatically in its Index rank over the past year, falling twelve places (from 16th place in 2011 to 28th place in 2012). In 2011 Illinois passed House Bill 3659, the state’s affiliate nexus tax, and has been one of the more high-profile cases as affiliates relocated their business outside of Illinois in order to avoid being dropped by advertisers.
Summary
While affiliate nexus tax law may be a significant factor in determining where affiliates live and run their business today, this will likely change in the future as more federal solutions are introduced and explored. For affiliate marketers, this means that they will soon be facing the same tax burden challenges as other businesses and need to determine the most cost-effective place to establish their business. States that create effective tax systems that are hard-working for both businesses and individuals will attract and retain affiliate marketers, while states that rely on complex taxation with high tax rates will continue to struggle as businesses relocate.
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