Amazon now threatening to cut off California affiliates
A couple weeks ago the California state legislature passed an "Amazon Tax" bill, and today we got to see Amazon’s response.
Amazon called California’s bluff today. They sent out a letter to their affiliates in the state and told them that if Gov. Jerry Brown signed the bill into law, Amaozn would cut them off. The letter is at the end of the post, but the context is simple. Amazon won’t be bullied into collecting sales taxes when they can avoid it.If all they have to do is abandon their local partners, they will.
At least, that’s what Amazon are threatening, but I’m not sure they can follow though. California is a large and populous state. I suspect that it would hurt too much for Amazon to give up their California affiliates.
I know that there has been at least 1 state that Amazon didn’t drop because it passed an Amazon Tax: New York. It’s not clear why Amazon kept NY affiliates but dropped them in Ill., Conn, Colorado, and other states, but the leading theory is that the NY affiliates were worth too much in terms of Amazon’s income. I’m betting the same is true for California.
For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers – including but not limited to those referred by California-based marketing affiliates like you – even if those retailers have no physical presence in the state.
We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.
As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective. We will send a follow-up notice to you confirming the termination date if the California law is enacted. In the event that the California law does not become effective before September 30, 2011, we withdraw this notice. As of the termination date, California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com,MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned on or before the termination date will be processed and paid in full in accordance with the regular payment schedule.
You are receiving this email because our records indicate that you are a resident of California. If you are not currently a resident of California, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state in the near future please contact us for reinstatement into the Amazon Associates Program.
To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect their ability to purchase from Amazon.com, Endless.com,MYHABIT.COM or SmallParts.com.
We have enjoyed working with you and other California-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to California residents. We are also working on alternative ways to help California residents monetize their websites and we will be sure to contact you when these become available.
The Amazon Associates Team
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Stephen June 29, 2011 um 4:40 pm
hey just thought I’d let you know, the reason Amazon didn’t cut off the affiliates in New York, is because Amazon is actually suing the state to get it overturned. New york was the first state to do this type of "tax" and so Amazon is fighting it, only one case is required since this will definitely go to the Supreme Court!
Jason Putorti June 29, 2011 um 4:43 pm
If you want Governor Brown to veto this tax, you can tweet a link to:
Or go yourself and sign if you’re a California voter. We will deliver all messages to the Governors' office.
Mike Cane June 29, 2011 um 6:15 pm
I don’t think digital goods should be taxed. But Amazon also deals in physical things. Maybe they should have bought B&N after all since I don’t think these states will give up. And at some point a near-bankrupt Federal gov’t will permit such taxing.
fjtorres June 30, 2011 um 8:21 am
I don’t think Amazon would fight a single, uniform, *federal* tax.
The issue they wield is that the states are, in their view, interfering with interstate commerce to favor local retailers.
Federal law generally forbids states taxing out-of-state vendors, hence the physical presence clause. And hence, states' passing over-broad laws defining any kind of local partnership as a presence. In most cases it’s overreach and likely to be overturned in most federal court jurisdictions. (The notable exception being the districts within by the ninth circuit. And that usually gets reversed by SCOTUS.)
Where the california case is different is that Amazon bought out a couple of R&D labs in the state, the sources of their A9 search engine and Kindle software, and the law targets these wholly-owned subsidiaries as a presence for the entire company. Again, a stretch but not *totally* unreasonable.
In a similar illinois case, a whole bunch of small internet companies just picked up and moved to Wisconsin. Not much fun but it was either move or lose the partnership contracts that paid the bills.
For amazon it’s easier; they’ll just fold the california labs and move the work to seattle. The few hundred employees can either move or look for new jobs.
If you read the Amazon letter carefully you’ll notice the hints and suggestions that if the affiliates choose to move their businesses out of california, they won’t terminate the contracts.
But, as pointed out, Amazon does a lot of business in california and the business loss from the affiliates is going to be way less than the cost of tracking, charging, and forwarding sales taxes for all the disparate tax regions.
Several thousand, I seem to remember, each getting separate tracking and payments:
Small wonder Amazon refuses to take on the job of unpaid tax collector.
Chris June 30, 2011 um 4:31 pm
A federal sales tax? Bite your tongue.
fjtorres June 30, 2011 um 6:05 pm
Not advocating it, but at least it wouldn’t violate established law.
That said, the spend and tax crowd (not to be confused with the Carter era tax and spend liberals) are pushing for something worse, a national VAT so they can tax productivity instead of mere consumption.
Chris June 30, 2011 um 7:04 pm
Oh, I know it. (And they’ve been taxing productivity since February 1913.) I wasn’t saying you were advocating a federal sales tax. It was more of a "name that shall not be spoken" sort of thing.
mdarnton June 29, 2011 um 6:21 pm
Having dumped Amazon months ago for their political actions, I say good-bye and good riddance.
William Walsh June 30, 2011 um 1:16 am
Is that the whole wikileaks related thing, mdarnton? If so, I call rubbish. They’re a company, not a public press.
As for the tax issue at hand, Quill Corp. v. North Dakota created the standard that a company must have a "substantial nexus" with a state in order to be subject to its sales and use taxes. The court left it in the hands of the US Congress to pass legislation enabling interstate collection of sales tax, and the US Congress has consistently failed to do so, because it is hugely unpopular with voters.
So states like NY, Texas, and California, among others, have tried to force the issue by crafting unconstitutional tax laws that redefine the term "substantial nexus" to include what amounts having publishers in the state who place ads for the company on the publisher’s property. Under this standard, every company would have to collect and render sales tax for sales to California and New York residents because television networks in those states carry their ads and receive payment from the companies in exchange for them.
It’s a ludicrous attempt to circumvent Quill Corp v. N.D.
In my case alone, California will lose the income tax I pay on the ~$6k in earnings made from Amazon’s affiliate program, and will gain no sales tax revenue as a result to replace it.
It’s a stupid and ridiculous game of chicken.
And California wonders why business' are fleeing the state. One expert in business location and relocation has said that if he even brings California up these days, he gets laughed at.
Richard Adin June 30, 2011 um 4:37 am
First, @Mike Cane — Glad to see you finally agree with me that B&N would have been a good purchase for Amazon.
Second, as regards the tax issue. Never let it be said that Amazon isn’t your friend. Like all good friends, it puts itself first. Clearly, collecting the tax and paying it isn’t too much of a logistical problem. They have to do it on Agency books. The real problem is that it makes Amazon’s prices closer to the prices that have to be paid at its competitors. Strikes me as no bargain when the bargain is the tax part rather than the retailer’s profits.
Personally, I hope that Congress and/or the courts do level the playing field and require Amazon to collect and pay sales tax nationwide. It will make Amazon seem much closer to being a true friend of mine.
fjtorres June 30, 2011 um 8:32 am
Last I heard it is the Price Fix six who pay out the sales tax to the 35000 different tax regimes and fill out the mountains of paperwork that go with it. Amazon simply adjusts the sale price and publisher payment and forwards it, along with the number of sales to a given regime, to the publisher. A lot less bureaucracy involved.
They’re just an agent, after all, so they have no other obligation; the publishers cary the real legal burden.
Chris June 30, 2011 um 4:37 pm
Amazon isn’t your friend. They’re a means of acquiring goods. Period. The problem with government going after (or being urged to go after) [insert name of 'evil' large company here] is that these large companies can, and do, defer the costs foisted upon them in the name of "fairness". In the end it winds up hurting the smaller competitors, the consumers, and the target companies business associates while never causing the target of the legislation much more than a minor irritation.
fjtorres June 30, 2011 um 9:18 am
By the way, sales tax or no sales tax, Amazon can always undercut local retailers; they are simply bigger and more efficient than local retailers. Period.
Until local retailers find ways to deliver consumer value in line with their prices, justifying the price differential, consumers will still buy from Amazon. In books, plenty do; Amazon only holds a 25-30% share of the pbook business, after all.
Also of note, Amazon doesn’t compete solely on price.
Focusing on price waves away their bigger advantage in pre- and post- purchase service and support, and the biggest edge of all; breadth of catalog.
Folks in the giant metro areas just don’t understand the value to residents of smaller communities of not having to drive 100 miles, to a whole different state at times, just to get the quality product you want, when the alternative is at best a Sears, Walmart, a
or Radio Shack.
Also, price fixing by giant multinationals isn’t limited to ebooks.
Consider this particular ploy by some HDTV manufacturers:
Now, consider Amazon:
Still think sales tax is going to change things much? Those are pre-tax prices.
On quality products, not third tier knock-offs.
And they *still* make decent profits.
I am under no delusion that Amazon is my friend.
Rather, they are a *tool* I use to get products I want at a price I can afford.
A personal shopper, if you will, that negotiates with manufacturers for me.
As long as their business model lets me defy manufacturer attempts to rip me off, they’ll get my business whenever it makes sense for me.
When it doesn’t I’ll take my wallet and "vote" it elsewhere.
Times are tough and tough times make for Darwinian marketplaces.
May the best business model win.
MJ June 30, 2011 um 9:57 am
Brown signed it into law. Done deal. Amazon has terminated all CA resident Associate accounts. Got the notice moments ago. You were wrong. It wasn’t a bluff. Jerry Brown sucks
Nate Hoffelder June 30, 2011 um 10:08 am
Yep. Writing it up right now.
natschultz July 1, 2011 um 12:28 am
I’m waiting DESPERATELY for Amazon to drop its NY affiliates. Keep suing, yes, but so far they have lost at least $2,000 in business from me alone – and NO, I have NOT gone back to crappy B&N here in NY.
There are no "local" small bookstores here in NY anymore – Barnes and Noble killed them LONG before Amazon even existed. I’ve been boycotting B&N and Starbucks forever. But I did blow thousands $ every year at Amazon until I was charged over $25.00 in NYS sales tax – I didn’t know the tax had just gone into effect – that was a few years ago and I have not bought a single item from Amazon since. On PRINCIPLE ALONE! Overstock.com, I deliberately began shopping there just to support their decision to dump the NY affiliates!
NYS hasn’t earned one extra penny from me! And NYS DOES NOT NEED THE MONEY! Blowing more than $25,000 PER PUPIL and not even 60% can read at grade level? GIVE ME A BREAK! And now they are TRIPLE TAXING us for the MTA and CUTTING SERVICE and INCREASING RATES? Are they NUTS?!?
NO, NY and CA DO NOT need more revenue from taxes – they need to learn the meaning of EFFICIENCY and cost vs benefit!
BTW: Even with the 10% tax Amazon is cheaper than the brick and mortar stores – and the VALUE is much better – no wasting gas only to find out the local bookstore does not have the book you want! For the selection alone Amazon is worth it. If Overstock was smart they’d start a real competition on books, movies and music. Until then my bookcase will remain static. Just on PRINCIPLE alone – Amazon, DROP THE NY AFFILIATES!
fjtorres July 1, 2011 um 7:07 am
I think that if they drop the NY affiliates they would lose their court standing to sue over the law. So keeping them, for now, is necessary to put an end to the attempts to turn online vendors into tax collectors.