I guess the song was wrong. Amazon did leave (the Hotel) California.
So last night California Governor Jerry Brown signed the new state budget into law. Part of the budget included the so called “Amazon Tax” bill, which redefined and stretched the legal definition of nexus.
Amazon responded by cutting off their affiliates in California. I hope you weren’t surprised; Amazon have dropped affiliates every time a bill like this was passed.
The interesting quirk about tax collection in most states is that customers have to pay the tax but retailers have to collect it. And if a retailer doesn’t have a “nexus” in a given state, that retailer doesn’t have to collect taxes. This puts out of state web retailers in the interesting position of not having to collect the sales tax that their customers have to pay.
The detail that these “Amazon Tax” bills have in common is that they redefine what qualifies as a nexus. The laws are trying to force web retailers to collect sales tax based on not where the retailer operates, but based on where the retailer have business partners. This type of third-party obligation is at best iffy on a constitutional level, which is why Amazon have fighting it in court in new York.
This issue is bigger than just Amazon affiliates. It also affects all sorts of small companies based in one of the states that pass these laws. Take FatWallet, for example. They moved across the border from Illinois to Wisconsin in order to escape Illinois’ version of the law. Everyone was cancelling contracts. They had to move.
Or, just to draw an example from California, there’s also San Francisco-based VigLink. They help website owners host ads from web retailers. Their presence in California means any web retailer that have a contract with Viglink now have a nexus there, so the retailers are going to cancel the contracts.
I’m in favor of web retailers collecting taxes, but these laws are not the way to do it.
Here’s the letter sent out to affiliates late last night:
Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011. Those California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM orSmallParts.com.
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