Today marks the first day Amazon.com would have been required to start charging California customers a 7.25% base sales tax on their purchases, after Governor Jerry Brown signed a new piece of legislation to that effect two days ago.\u00a0 The catch?\u00a0 The justification for requiring this state sales tax hinged on the fact that Amazon has affiliate web sites in California that receive commissions for directing customers to them to buy items.\u00a0 So, only hours after the legislation was signed, Amazon decided to fight back by severing their ties with over 10,000 affiliates in the state!<\/p>\n
Since 1992, a Supreme Court ruling has prohibited states from collecting sales tax from businesses unless those businesses have a physical presence (such as a retail outlet) in that state.\u00a0 Consumers placing the out-of-state orders are supposed to pay the taxes due themselves, but in practice, they rarely do and it’s nearly impossible to enforce.\u00a0 Therefore, states have been seeking ways to broaden the definition of a “physical presence”.<\/p>\n
One of the big reasons for Amazon’s success is their ability to undercut prices of local retailers.\u00a0 (Amazon, based in Seattle, saw over $34 billion in sales last year, and their stock is up over 13% so far this year.)\u00a0 But after sales tax is added to their purchase price, the price difference isn’t always significant enough to motivate people to shop online and wait for their purchases to be delivered.<\/p>\n
The affiliates are, obviously, unhappy with this decision, but they are affected to varying extents.\u00a0 One of the larger affiliates, Savings.com<\/a>, currently employs 80 workers and claims that Amazon’s action cost their company as much as 20% of their total business and will probably require them to lay off some of their employees.\u00a0 At the other end of the spectrum, an affiliate may simply be a single person who made a little extra cash each month by linking to Amazon from his or her home-based business web page.<\/p>\n California isn’t the first state to attempt to collect from Amazon, however.\u00a0 So far, similar laws have been passed in New York, Illinois, Rhode Island, and North Carolina \u2013 most of whom no longer have Amazon affiliate programs anymore either.\u00a0 (New York managed to keep their affiliate program, most likely because it was such a huge market.)\u00a0 Still more states are considering it, including Arizona, Hawaii, Louisiana, New Mexico, Missouri, Tennessee, Texas, and Vermont.\u00a0 Despite these laws being commonly referred to as Amazon Tax legislation, they actually affect other web-based retailers too.\u00a0 Overstock.com<\/a> just severed ties with hundreds of their California-based affiliates to avoid the sales tax, and Drugstore.com<\/a> says they have to rework their affiliate business model as well.<\/p>\n Supporters of the new CA legislation claim that Amazon denies the state over $317 million in yearly tax revenue, and they have an unfair advantage over “brick and mortar” retailers in the state at a time when they’re already financially struggling to survive.\u00a0 Amazon counters by claiming the legislation was supported primarily by “big box” retailers with corporate offices located outside the state in the first place.\u00a0 It appears that the General Treasurer of Rhode Island, Frank T. Caprio, is on their side as well.\u00a0 He was recently quoted as saying, “The affiliate tax has hurt Rhode Island businesses and stifled their growth, as they\u2019ve been shut out of some of the world\u2019s largest marketplaces, and should be repealed immediately.”\u00a0 In some cases, this legislation has even caused web-based business to relocate.\u00a0 FatWallet<\/a>, a site acting as a large affiliate to both Amazon and Overstock, moved their entire business from Illinois to Wisconsin after Illinois passed their version of the Amazon Tax.\u00a0 In Texas, Amazon is currently attempting to negotiate a deal with legislators to guarantee their sales tax free status. In exchange, Amazon claims it can bring 5,000 new jobs to the state and spend $300 million on new distribution centers in Texas, where those new hires would work.\u00a0 If they can’t come to an agreement, however, Amazon has the option of threatening to move its wholly-owned subsidiary, Woot.com<\/a>, out of the state as well.<\/p>\n The marketing blog Danger Brown<\/a> suggests a legal work-around for affiliates facing this dilemma.\u00a0 He recommends affiliates:<\/p>\n