Amazon cans its California affiliates. California loses, affiliates lose. It’s time for a bigger discussion.
Yesterday a couple California readers forwarded a message from Amazon.com saying that, should their governor sign in to law a new so-called “affiliate tax”, their participation in the Amazon Associated program would be terminated.
Hours later they received a message saying the bill was signed and they’ve been kicked out of the program.
I’ve written about the affiliate tax many times. Here’s the idea:
1. State wants to raise more money
2. It’s upset about missing out on sales tax from online purchases
3. Creates a law saying that a web site’s affiliate marketers represent a sales force, so the site has a “nexus” in the state.
4. This allows them to force the e-tailer to collect sales tax on purchases.
Except that it doesn’t work. It ends up being a lose-lose. As you see in this case, Amazon has decided to fire its affiliates instead of collect the sales tax. That means not only does California not get the sales tax it wants, but its citizens’ income goes down. With a hefty income tax of nearly 10%, that means California will actually get less revenue now that it has passed this law.
It gets worse. A lot of people are going to lose their jobs. They work for companies that get a lot of their income through affiliate programs. Heck, one of the biggest affiliate program networks, CommissionJunction, is located in California.
California tried to pass a similar law before, but then-Governor Arnold Schwarzenegger vetoed the bill.
This isn’t new. Amazon has fired its Colorado affiliates and North Carolina affiliates. Instead of firing its New York affiliates it is challenging the law there.
We had a related scuffle here in Texas. A newspaper reporter in Dallas noticed wrote about an Amazon.com flag flying outside a distribution center in the area and asked why Amazon wasn’t collecting sales tax on Texas purchases.
The Texas comptroller ended up sending a $269 million bill to Amazon for uncollected sales tax.
Fine, said Amazon: we’ll just close down the distribution center and fire all the employees.
So Governor Rick Perry, not one to like seeing jobs lost, said he disagreed with how the comptroller handled the situation. Then Amazon decided to try making something out of it by saying it would bring thousands of jobs to Texas if it wasn’t forced to collect sales tax.
You see what’s going on here? It’s like the economic incentive packages that cities and states dole out to attract business.
The “affiliate tax” is a bad idea for the reasons I’ve explained above. At the same time, it’s not fair to companies like Best Buy and Barnes & Noble that they have to collect sales taxes, even on online sales, when Amazon.com doesn’t have to.
The guidelines companies work with today were created in a catalog world. We’re in an internet world now.
It’s time for a national discussion on sales tax.
jp says
I think a good question is, In return for collecting the sales tax, what is the state going to do in return for Amazon, other than increase complexity and expenses and gross costs for customers?
Perhaps if the state provide some sort of protections against product returns? Amd more importantly what is the actualy payer getting from the state in return for the sales tax when the payer doesn’t even live there? Seems like taxation without representation.
mrx says
The problem with any tax is, it always increases. Government will spend everything can and more.
Starving the bastard leech is the only way to control it.
Jeremy Leader says
mrx: the trouble is that if you take that approach to the extreme, you end up with Somalia, or worse.
jp: I think the “payer” is generally considered to be the purchaser (who lives in the state that’s collecting the tax); the seller just collects the money from the purchaser. However, collecting would be a huge headache if a small but nationwide long-tail company had to collect different sales taxes from purchasers in every state and municipality.
Andrew Allemann says
@ Jeremy – yes, that’s a big problem with our current sales tax structure — its complexity. There would need to be consideration made for that nationwide long-tail company.
But if Best Buy can calculate it for its customers, I don’t see why Amazon can’t.
page howe says
there is a national sales tax, every person who buys out of state should be paying USE tax on their state returns each year, the system was never set up to NOT have the tax imposed, just no way to legally collect it when the buyer was in another state… over time, not collecting a forced withholding, was then thought of as there not being a sales tax when you bought out of state.
page howe says
heres the wikipedia take on it
http://en.wikipedia.org/wiki/Use_tax
John Berryhill says
“In return for collecting the sales tax, what is the state going to do in return for Amazon”
Run schools. Teach people to read. Those people buy books.
Wayne Tatum says
@ “Run schools. Teach people to read.” You can’t seriously believe that.. I highly doubt the Government wants to impose this Tax for the purpose of educating their citizens, please.