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.
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.