As you likely have heard, California passed a new tax law last week that created quite a stir, and resulted in Amazon.com terminating its affiliate program in the state effective immediately.

What you may not know, though, is that this type of law - an Affiliate Nexus tax law - could require you (not just big companies like Amazon) to pay sales taxes on revenues generated via online sales in the places like California.  It is critical for you to understand the rules so you don’t run into trouble with the tax man.

Let me first say that I’m not a tax lawyer or CPA, so make sure you confirm how these rules apply to your business with your own tax professional. However, I do want to give you some background here so you have a basic understanding of the rules.  Historically speaking, sales taxes are required when your company has a sufficient connection with that state. The technical term is a “nexus.”  Up until recent years, a nexus was defined by most states as having some kind of physical presence in that state, either by having an actual office or brick and mortar presence there, or employees physically in that state.  Online transactions were not taxed unless the retailer also had a physical store in that state.

However, in recent years, a number of states have extended the definition of nexus to include online sales via affiliates.  In essence, those states are treating affiliates as an extension of the retailer, similar to an employee.  Amazon and other companies object to that definition.  Their position is that the affiliate is a marketer or advertiser and nothing more.  No matter which argument you agree with, the reality is that California joined the ranks of the states using the affiliate definition of “nexus” for purposes of collecting sales tax on transactions in the state.  Let me put it another way:  California will now impose a tax on any sales revenue generated in the state just by virtue of the affiliate being physically in the state (not the retailer).  Online retailers with California-based affiliates are now required to collect and pay state sales tax on purchases made by California customers.  As I understand it, this includes all revenue, not just affiliate revenue - the affiliates’ presence in the state just gave the state the “nexus” it needed in order to claim that Amazon and other online retailers were connected enough with the state to justify taxing their activities.

So, for example, even though the affiliate is not an employee or agent of Amazon.com, because Amazon had affiliates physically in the state, that results in a tax burden in California for Amazon.com.  Amazon’s reaction was to immediately terminate its affiliate program in California so that it no longer had the “nexus” required to enable the state to tax their online sales to California residents.  Other online retailers did the same thing, including Overstock.com and BlueNile.com.

This is important because it doesn’t just affect companies like Amazon.  It affects you if you have an affiliate program of any kind for your company.  If so, you need to make a decision about how you want to proceed.  If you want to continue your affiliate programs, you must know which states require you to pay sales taxes on internet-based sales (all sales to residents of that state, not just sales through affiliates) and you need to make sure you are operating your company in compliance with each of those state statutes.  The states that have these affiliate tax rules currently are:  Arkansas, California, Connecticut, Illinois, New York, North Carolina, Rhode Island.  Other states are considering similar legislation.

Please contact your tax professional immediately to make sure you are in compliance with all of these state rules going forward.  And if you keep your affiliate program, then make sure you stay informed about any new Affiliate Nexus tax laws that pass in other states.

Recently, I attended a book signing for Robert Kiyosaki’s new, best-selling book, “Unfair Advantage – What Schools will NEVER Teach You About Money.” The author of the number one personal finance book of all time, “Rich Dad Poor Dad,” investor, entrepreneur, educator, and co-host of the new radio show, “What Does It Mean to You?”, agreed to share some of his tips with the StartupNation audience.

Here’s what Robert had to say:

In “Unfair Advantage,” you mention that schools don’t teach us about money. Why not?

I believe the reason for this goes back to 1904 when John D. Rockefeller took over the education system in the United States with the General Education Board. And ever since then, the rich have controlled what is taught in our schools. Rockefeller’s purpose, it seems, was to find the brightest and the smartest people who had no financial education. Then, they would need a job and work for him. That’s my opinion.

Why is it important for people to read “Unfair Advantage”?

If you read Rich Dad Poor Dad, it was my story when I was nine years old. It’s very simply written about my poor dad, who was the head of education for the State of Hawaii with a Ph.D., and my rich dad, who was my best friend’s father. Unfair Advantage is me in my sixties now. I’m doing exactly the same thing I was doing when I was nine, but today, I’m doing it in the millions.

Decades have passed, but my financial strategies have never changed. In Rich Dad Poor Dad, which came out in 1997, I said that your house is not an asset. And rule #1 from my rich dad was that the rich don’t work for money. 

Most people go to school to get a job and spend their lives working for money. As long as you’re physically working for money, you’ll pay more taxes than guys like me. Unfair Advantage is basically Rich Dad graduate school using 2010 examples.

With the high unemployment rates, many people want to start their own businesses. Other than read your book, “Before You Quit Your Job,” what advice do you have for these people?

“Before You Quit Your Job” covered what you should know before you quit your job because there are basically eight integrities to a business. And the reason nine out of ten businesses fail is because they may be good at seven of the eight, but it is number eight that gets you. A successful business needs all eight of the integrities of a business strong and working together.

Most people leave school too highly specialized. They don’t know anything about business, accounting, legal, or cash flow. And that’s where they get crushed. 

My message to people is this… if you’re following the old advice of the middle class which is go to school, get a high-paying job, work hard, save money, get out of debt, and invest in a portfolio of stocks, bonds and mutual funds, you’re being crushed.

The reason you want to be an entrepreneur is to get out of the middle class. The middle class is being wiped out right now. 

Is it a good time to start a business?

It’s not timing that’s the issue, it’s how you prepare. The fact is that it’s not that hard to be an entrepreneur. My next door neighbor’s little girl comes over, and she polishes shoes. She’s an entrepreneur. 

The trouble is that most people go to school and look for a high-paying job. The problem with getting a high-paying job is taxes. If you work hard and make more money, you move into a higher tax bracket.

That’s not financially intelligent, and they’ll never teach you that in school. To me, that’s stupid. For the middle class, they are going to pay more taxes and struggle with rising inflation. How do you get ahead doing that?

How do business owners put the Unfair Advantage to work for them?

Unfair Advantage is about capitalism. And believe it or not, the tax laws are written for capitalists. The tax laws are telling you what to do. This is what the government wants you to do – provide housing and be an entrepreneur to create jobs. And for that, the government will give you huge tax breaks.

Looking back at your success as an entrepreneur, what would you have done differently to achieve a higher level of success faster?

I can’t say I would’ve done anything differently because every mistake I’ve made was someone showing me how stupid I was. The more mistakes I made, the more stupid I found out I was, and the smarter I became.

That’s why most people who do well in school are not good entrepreneurs. They’ve been programmed to not make mistakes… so I can only encourage people to be stupid and learn from their mistakes. 

It’s called “Unfair Advantage #5”, the law of compensation. The reason I make so much money today is because I’ve made so many mistakes…. so start making mistakes. Mistakes are very good for entrepreneurs and very bad for accountants, lawyers and brain surgeons. You don’t want a brain surgeon making a mistake! It’s a different world for entrepreneurs.

Many people are in a really bad situation now. They are unemployed with huge credit card debt and are on the brink of losing their home and claiming bankruptcy. Plus, many of them are over 40. Is there hope for these people, and what do you suggest they do first to change their financial situation for the better?

They probably need to ask themselves why they got themselves into such a precarious position. And second, I’ve been there. I’ve lost. The most depressing day of my life was when they repossessed my Harley Davidson. I’ve had the IRS after me because I couldn’t pay my taxes. But all of those were fantastic learning experiences that made me smarter and wiser.

I think the best thing that happened to me was to lose my business at age 29. I’m glad I didn’t lose it at 49. It took me six years to dig myself out of nearly a million dollars of debt. I didn’t declare bankruptcy. I just paid everybody back. I rebuilt my business, and that’s when I got smarter, and I’m still getting smarter every day.

Today, I can make that money back faster. And that’s the attitude an entrepreneur has to have. Mistakes are a learning experience. 

There are many financial scams out there. How do people find credible information and advisors to help you and avoid being ripped off?

It’s the same as finding the perfect husband or wife. You don’t know until after you get married! Cut your losses early, and figure out if you are the cause of the problem.

What is the best piece of advice you ever received and how did you use that advice to succeed?

I have a B.S. degree, and I’ve never used anything I’ve learned at school. When I found out I was not really good at school, I got through by cooperating. I always sat next to the smartest people in school. In the real world, that’s called cheating. Today, it’s called collaboration.

I’m extremely lucky to have very bright partners. That’s one of the most important things you can have.

You’ve got to be careful who you hang around with. I used to have a lot of friends, but they didn’t continue on as partners. They did not keep expanding their education. They were complacent. And today, I can’t even talk to them as we’ve become such different people. I kept moving on. I kept getting educated and growing. 

And in 2009, one of the best things happened. One of the most influential financial groups in our hometown invited Kim (my wife) and me to be business partners. And that’s how I knew I was doing o.k. You know you are making progress because your friends change.

I’m sure you’ve heard people say, “Do what you love.” But I think you must do what you must do. A lot of people cannot do this. As an entrepreneur, I guide my business and my activities to get paid the most money and pay the least taxes.

What are your favorite media venues to get financial information you can use to enhance your financial education?

I read “The Economist” and other financial magazines so I’m abreast of what’s going on. I’m always taking seminars and classes.

What you’re going through now as an entrepreneur is incredible. That struggle you’re going through is one of the best things you can go through to learn. But don’t stop getting educated.

Get mentors and advisors and attend classes. Choose your teachers carefully, and make sure they have real-world experience. If you’re not changing, then you’re not growing.

Are there any additional tips you would like to provide specifically to the entrepreneurs out there trying to start and grow their businesses?

First, congratulations for the struggle. If you’re already struggling, you’ve taken the first step. You’ve got to be careful of your teachers, your partners and your friends. And you’ve got to do your part. If you’re stupid, people who are smart are not going to want to hang out with you.

You can’t stay still because the world is going too fast today. If you’ve already started, congratulations, but don’t stop now!

Thanks so much for your great words of wisdom Robert! For more tips to succeed, please check out “Unfair Advantage” and all of the information at www.richdad.com.

And if you need help with your SEO copywriting and PR efforts, please let me know here or at www.rembrandtwrites.com!

Here’s what David had to say…

What do you do at gotoBilling.com and how long have you been with the company?

I’ve been with the company for three years now. My official title is Director of Operations, but I do a little bit of everything. 

One of our big projects is building a new style of support modeled after another company that did wonders with the concept. It’s how our support staff will not only handle customer support and training, but will also handle the sales.

That way, when we work with customers, they never have to deal with different departments and different people from their initial call to ongoing support.

To accomplish this, I help with training, operations, and the workflow from our CRM system and how the rest of our internal systems tie together.

The concept is that from the beginning when someone calls, there’s one person that handles all the customer interaction so the customer always feels a strong connection to who’s helping them and that person never gets lost in the shuffle from one department to the next. 

I also work a fair amount on SEO on our Web site and do a little sales as well. Then, there’s also helping with the design and testing of new features as that falls into my Operations category of responsibilities.

Operations is always a broad category which I like as it really allows me to help with the overall working operations of an entire company so we are all moving in the right direction and in step with each other and each department.  

gotoBilling.com experienced a 307% volume increase during the recession. What is your secret to success?

Well, I think there are a couple of things. Number one is that every business still needs the ability to handle their payments and do it cost effectively.

Our system is much easier to use than other systems so it saves people valuable time, helps speed up their collection of funds, and since we handle multiple forms of payment many different ways for a business, then we have a real impact on helping a business streamline some of their processes. 

I think that is what has allowed us to continue growing during this downturn in the economy compared to many other companies. Also, and maybe most importantly, we didn’t make any budget cuts in marketing our services.

What do you do differently than other, similar businesses that are currently struggling due to the recession?

We kept on marketing and didn’t cut the budget. In fact, we increased our marketing and sales budget as that is the life-blood of a company. From what I hear, that might also have been a big factor in what we did compared to other businesses.

What can other e-commerce businesses do now to be more successful during these tough economic times?

Don’t stop marketing! 

To me, that’s the main thing to do. Now that the economy is tough, your competitors are cutting back on marketing and sales so it’s prime time to increase yours and grab the business. 

It’s sort of like buying property when the price is down. There are less people bidding to buy so it’s a better market. It’s the same thing when selling a product. There might be less businesses buying, but if your competitors have cut back their advertising, yours will stand out more for the ones that are still buying.�
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For more great tips from David and how his company is thriving during these tough times, check back on Thursday.

In the meantime, please feel free to send me your comments and PR questions here or at www.rembrandtwrites.com.

I just moderated an expert panel on video as part of the Wells Fargo Webcast Series on this very topic and believe it’s a great way to get a snapshot of residential and commercial real estate realities and strategies. The program discusses how real estate can be a tool for reducing expenses as well as generating revenue. It also sheds light on the new rules of the road, including federal initiatives that impact us. Learn about:

• Lowering monthly payments by refinancing or renegotiating
• Mitigating commercial property tenant vacancies
• Reducing overall operating expenses and discovering true cost savings for your business
• Adapting to the current residential and commercial property markets

TurboTax Business is tax preparation software that asks easy questions about your personal and small business income, finds business write-offs, checks for errors and helps decrease the risk of an audit.

This is all part of the bigger picture in which StartupNation continues to help you save time, save money, make more money and reach your goals in business more efficiently. Nice to have a company like Office Depot on board with the same objectives!

If you want your shot at winning a free copy of TurboTax Business, here’s what you do:

Simply enter a comment below about how a product like this from Office Depot could help you file your taxes.

This contest starts today and ends at midnight eastern time on Friday, April 10.

We will randomly pick 20 winners from all comments provided by small business owners. CPAs and other tax professionals are asked not to participate so as to allow those with lesser tax filing resources and sophistication to have the best chances to win this invaluable software. Only one comment is allowed per contestant.

The 20 winners will be announced Saturday, April 11, and copies of the software will be express mailed to them promptly. Winners must by 18 years of age or older and must be based in the U.S.

All StartupNation spam rules apply, and StartupNation retains the right to delete any blog comments it deems to be inappropriate. If contestants do not provide a website link–with contact information available at their website–in their comment, we will have no means to contact them, and, accordingly they will not be included in the random drawing. Note that the comment posting process in our blogs give you an opportunity to list and link to your website in a convenient way.

Jump in! Become a winner! We look forward to reading your comments.

As always, we want you to start it up, and we hope this TurboTax software giveaway helps!

www.sba.gov/stimulus is a new site set up to help you understand just how.

Included at the site are:

1. A fact sheet that provides a clear explanation of the small business tax benefits.
2. A deprecation calculator that provides an estimate of the first-year depreciation available under the provisions.
3. An online seminar that provides a brief tutorial summarizing the tax benefits and concludes with the depreciation calculator.   

You might be surprised to learn that the stimulus package contains the following tax incentives for businesses: a 50% bonus depreciation allowance on equipment purchased and placed in service in calendar 2008 and an almost 100% increase in the amount (from $128,000 to $250,000) that a business can expense for equipment purchased and placed in the business tax year beginning in 2008.

Maybe you should buy that laptop after all?

Not only that, but you are so proud of yourself, because you have done exhaustive market research, completed a fabulous and no-fail business plan and are already taking orders from your home office.

WAIT! Step away from that business loan application and listen.

While a great majority of new businesses start as sole-proprietorships, most of them should not. While there are ease-of-use and tax advantages to a sole-proprietorship, the ever-present exposure to liability can render those benefits useless. I would venture to guess that most small start-ups could benefit from becoming an LLC as soon as possible. Here is why:

• Operating as a sole-proprietorship exposes you to all the debts and liabilities incurred by your company. That means that your personal assets (your house, your car, that collection of vintage Barry Manilow LPs that you secretly love) are all vulnerable to creditors and potentially injured customers, suppliers or third-parties if you end up in a dispute or are unable to pay your company’s debts.

• An LLC generally (see below) protects the business owner from business debts and liabilities, while also providing pass-through tax benefits (consult your friendly neighborhood CPA for more information on what entity form provides the right tax treatment for your business).

• A single-member LLC will be treated by the IRS as a sole proprietorship, so you haven’t lost that benefit by forming an LLC.

• Like the simplicity of a sole-proprietorship, an LLC does not require the maintenance of corporate formalities or certain corporate activities to maintain its status. It is a relatively maintenance free way to operate…aside from the business of running the business, that is.

• An LLC also allows you to grow and add additional members as needed by your company. Of course, if that happens, you will be treated by the IRS as a partnership and no longer as a sole-proprietorship. But that would happen even if you were moving from a sole-proprietorship to having more than one owner.

Now for the big but…

Not all debts and liabilities will belong to the LLC, even if you go through the trouble of forming one to house your new business. That is because many new businesses are only able to obtain credit/loans by providing a personal guarantee for that debt. If you provide your social security number or personal financial information to obtain financing or credit, you can bet that you will be personally liable for that debt, even if your LLC is unable to pay it back.

Also, even under a properly formed LLC, a member still faces personal liability for damages or injury resulting from his or her negligent or tortious behavior. And the issue of “limited liability” is more intricate to fully discuss in an entry such as this one, but is an important one to understand fully as you move into your new venture.

That is why I strongly encourage you to consult a reputable small business attorney before you form your entity. I have nothing against the low cost and efficiency of the internet-based entity-formation services out there, but as a lawyer who has spent many years cleaning up or working to resolve disputes for small businesses on the back-end, I’d rather see a small business owner spend a few hundred dollars for proper and customized legal advice before making such irreversible decisions about their companies.

It will be worth the peace-of-mind to know you set your business up properly, and you can get on with doing the work you love.

Now you ask, “How do I find a good small business lawyer?” That, my friend, is a different topic for a different time. Stay tuned!