Amazon.com has been closing its affiliate programs in certain states as these states find ways to tax online sales. Your state could be next and your online business could be shut down.
I woke up this morning to an email that said my Amazon Associates account has been closed. Residents of Colorado are the most recent to lose their Amazon Associates affiliates program. No one had any idea this was about to happen. Some people have had online Amazon Associate businesses for over 10 years, only to wake up and find that they no longer have a business and not much if any recourse.
As the United States and each state continues to lose money because of the deep recession and their own mishandling of revenue money, each states legislature has to find more creative ways to raise revenue. A current idea is what is called the Amazon Tax. In June of 2009, Amazon closed its affiliate programs in North Carolina and Rhode Island because of the passing of these so-called Amazon Tax laws.
History of Internet Taxing
In 1967, the United States Supreme Court ruled that a business without a physical presence, like an actual brick-and-mortar building, in their state, would not have to collect those state taxes. This ruling was again reaffirmed in 1992.
For example, if you buy over the telephone or Internet a product from Florida Widgets in Jacksonville, Florida and you live in any state other than Florida, your states taxes do not have to be collected. But, if there happened to be a branch or an actual Florida Widgets building in your state, then those state taxes have to be collected, whether you bought online or at the actual building.
State governments have been trying to collect taxes on Internet sales for years now and it is continually ruled against. Now states are becoming more creative in their ways to get around this. Instead of calling these Internet sales taxes, they call them a remote sales tax.
How This Has Affected Amazon and Other Affiliate Programs
States are now passing laws that include affiliate programs as being an actual brick-and-mortar business. If you are part of the Amazon Associates affiliate program, and you have Amazon.com ads on your web pages, states want to consider this the same as Amazon having an actual presence in their state. Which would mean Amazon has to collect taxes on those sales that result from the affiliate programs in their state.
The most recent state to pass the Amazon tax law is Colorado, enacted on March 1, 2010. The law, HB 10-1193, states that it is presumed that any out-of-state business that has a referral relationship with an affiliate in their state does have the obligation to collect a sales tax. The bill goes on with more specific threats like the power to subpoena records of any out-of-state retailers.
How Amazon Has Reacted
As these laws are being passed state by state, Amazon is reacting by just closing the Amazon Associate affiliate accounts for every person in that state. According to the letter that Amazon sent to its affiliates, Colorado’s new law doesn’t require them to collect sales tax, only to increase the compliance burden to a point where online retailers are induced to voluntarily collect the states sales tax. Something Amazon will not do.
Amazon also states that this new state law is unconstitutional since the US Supreme Court has already ruled and reaffirmed what is and is not a presence in each state for a company. Amazon will continue to sell to Colorado and the other states residents, but will not do so through affiliate programs located in the states that have passed these laws.
There is also a great deal of anger pointed right at Amazon for the way they have treated their affiliate partners in certain states. Just pulling the rug out from under their Amazon affiliate business without any warning.
How Will This End
Most likely, this will have to be decided by either a state supreme court or the US Supreme Court. Making a decision on just what constitutes a presence in each state, is it an actual building or can it be someone with a blog and some affiliate ads on it. Maybe the United States will pass a nationwide Internet tax.
No one had any idea that his or her Amazon Affiliate accounts would be closed each time this has happened. And I am as guilty as most others for not paying attention when the Rhode Island and North Carolina accounts were closed. California, Hawaii, Mississippi, Oklahoma, Virginia and Connecticut among other states are considering similar laws or recently did not pass them, for the time being. And most likely, Amazon will react in the same way. You have to pay attention to these laws before your state politicians pass them, or you could find an email stating that your Amazon Associates account has been closed and all of your hard work gone. This could also affect other affiliate programs like eBay, Overstock and Blue Nile.
© March 8, 2010 Sam Montana
Providence, Rhode Island Business News
Wall Street Journal
Colorado Law HB 10-1193