This PMA Legislative Bulletin is designed to summarize recently enacted Regulation 1684, a process under which remote retailers can continue their affiliate marketing relationships with California publishers, without having nexus established. This does not constitute legal advice. If you are a remote retailer that has affiliate agreements with California publishers, or if you are a California publisher that has affiliate agreements with remote retailers, you are strongly advised to consult legal advice.
Good news! A work-around has been negotiated by the PMA in California, to allow out-of-state retailers to retain their California publishers without creating nexus, under specific circumstances. The California Board of Equalization (BOE), the state agency that oversees enforcement of the Affiliate Nexus Tax law, has agreed to create regulations and a compliance process that allow retailers to maintain affiliate relationships as long as publishers agree not to engage certain marketing practices the BOE deems as ‘solicitation’ activities that directly target California consumers. The PMA believes this regulation will allow many, if not most, agreements with California publishers to remain in place.
Regulation 1684 was amended to describe use cases where affiliate marketing publishers and advertisers can continue their marketing relationships, as long as certain solicitation-like practices are excluded. The acceptable use cases, where nexus is not created, are described as:
The BOE makes a clear distinction between Advertising and Solicitation. Solicitation activities specifically target California consumers to encourage sales, and the BOE defines that kind of activity as nexus-creating for remote retailers. Advertising practices, which are passive in nature and don’t target Californians specifically, are acceptable under this regulation, and do not establish nexus for remote retailers.
Advertising, as defined, is OK
Advertising is defined as: a written, verbal, pictorial, graphic, etc. announcement of goods or services for sale, employing purchased space or time in print or electronic media, which is given to communicate such information to the general public. [Section (c)(8)(A-F)]
Allowable Advertising Practices
Solicitation, as defined, is not OK
Solicitation is defined as: a direct or indirect communication to a specific person or specific persons done in a manner that is intended to and calculated to incite the person or persons to purchase tangible personal property from a specific retailer or retailers. [Section (c) (A-F)]
Prohibited Solicitation Practices
Or put another way, “Solicit,” “solicitation,” “refer,” and “referral” do not mean or include online advertising generated as a result of generic algorithmic functions that is anonymous and passive in nature, such as ads tied to Internet search engines, banner ads, click-through ads, Cost Per Action ads, links to retailers’ websites, and similar online advertising services.
Compliance with Regulation 1684 requires action by the remote seller and by the California publisher. Compliance does not involve any submittal or filing with the state of California or any of its agencies.
Publishers must complete an affidavit swearing they are not conducting any of the prohibited solicitation activities, and provide that to its remote seller partners. Publishers must renew this affidavit annually. The Board of Equalization has issued this affidavit template, although publishers can create their own.
Remote Seller Requirements
Remote Sellers are instructed to include language in affiliate agreements with California publishers, which prohibit the outlined solicitation activity. Furthermore, remote sellers must accept annual affidavits from California publishers.
More information can be found on the Board of Equalization website: