In the ongoing state-by-state battle over tax collection on affiliate website sales, this afternoon Amazon warned thousands of affiliates their revenue streams would be shut off if a tax bill would be signed into law. Mere hours later, Governor Jerry Brown signed the bill , signifying tough times ahead for many online business owners.
UPDATES at bottom of page show Amazon dropped affiliates effective immediately, and the American Bookseller’s Association’s reaction to what they see as a victory for e-fairness bills against companies like Amazon and Overstock.com. /End update.
States are scrambling for cash, so it’s no surprise they see a pot of gold in e-commerce sales. Brick and mortar sites – such as Wal-Mart – that have failed to grasp the opportunities Amazon created with programs (like Affiliates) are out for blood.
Essentially, certain states have grubbed for tax money by passing laws that expand the definition of physical presence. They are specifically targeting e-commerce sites that work with affiliates – more specifically, websites that partner with Amazon as Affiliates to earn commissions from individual sales.
As a small business owner, I was among many that received a letter from the State of California last year telling me I owed retroactive tax on three year’s worth of any and all purchases I made from out-of-state businesses. I did the hard work, totaled the receipts and paid the state – almost all of my purchases were through Amazon.
I also, like many, pay my yearly state and federal tax on my Amazon Affiliate income.
What’s happened is that U.S. states have extended “nexus” to include areas of e-commerce it didn’t previously address.
Amazon’s Jeff Bezos: It’s Unconstitutional
It’s not as simple as saying that Amazon is “trying to avoid paying sales tax.” In fact, that’s not the case at all. The new state laws are specifically for affiliates: Amazon collects sales tax in Kansas, Kentucky, New York, North Dakota and Washington – the states where Amazon has stores or offices.
Look closer, and you’ll see that Amazon is fighting state-by-state battles against increasingly irrational legislation. In one instance, Amazon fought alongside the ACLU to keep customer records private when North Carolina tax collectors demanded private purchase information.
Last year Colorado signed a new law that extended nexus to e-commerce affiliates . The law required online retailers like Amazon to give Colorado residents a bill on how much they owe in sales tax on web purchases, and provide summaries of individual web purchases to the state. Amazon responded, as like with California, for better or worse, by cutting off its Colorado affiliates .
Amazon CEO Jeff Bezos believes the actions of the states to be unconstitutional and that this should be resolved at the federal, not the state level.
At the ShopSmart Shopping Summit held in New York last month Bezos stated,
“In the U.S., the Constitution prohibits states from interfering in interstate commerce, and there was a Supreme Court case decades ago that clarified that mail-order companies, because the Internet didn’t exist then, would not be required to collect sales tax in states where they didn’t have what’s called a nexus.”
Bezos also flat-out stated that Amazon would like Congress to create a national sales tax system, and said Amazon would support the ongoing Streamlined Sales Tax Initiative. Its aim would be to unify sales tax practices in all U.S.
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