Yesterday’s issue of The Sacramento Bee, the capitol newspaper for California, contained an editorial which I simply couldn’t miss. Let’s start right with an excerpt from it:
Amazon.com had $34 billion in sales last year, and is the world’s largest Internet retailer. Sadly, it remains a corporate citizen of questionable ethics.
…The company bases its business model on a refusal to collect sales taxes. By acting as a scofflaw, Amazon is able to save individual customers a few bucks. Overall, the amount of uncollected sales taxes on Amazon’s sales is huge – $83 million a year in California alone.
…Three bills are pending in the California Legislature, carried by Assemblywoman Nancy Skinner, D-Berkeley; Assemblyman Charles Calderon, D-Whittier; and Sen. Loni Hancock, D-Berkeley. …The Legislature ought to pass these bills, which attack the problem in different ways, and Gov. Jerry Brown ought to sign them.
The article also mentions in passing that the “company threatens that if California insists that Amazon collect sales taxes, it will terminate its relationship with 10,000 small-business operators who place Amazon ads on their websites in exchange for payments when visitors click on the ads”. It’s not a threat. They’ve done it in other states that passed a similar legislation (e.g. Rhode Island, North Carolina), and they’ve made it clear that they will do it again.
Just as back in 2009, a law like this will translate into immediate harm for thousands of small businesses (also known as affiliates or affiliate marketers). Amazon.com and Overstock.com have already made it explicit that they will terminate their California affiliates should the pending affiliate nexus tax legislation become law. The New York 2008 situation (with hundreds of online merchants terminating in-state affiliates) may repeat itself, and then 10,000 may end up being the lower-end estimate. Why the terminations? A fellow affiliate marketer, Mark Welch, explained it well in the comments under the above-quoted Sacramento Bee’s article. As he pointed out, the three bills that the newspaper is referring to apply only to “merchants who maintain performance-based advertising relationships with in-state publishers” (aka “affiliates”). So by terminating relationships with its affiliates, Amazon will take care of the situation (in a way I certainly do not support, but they didn’t ask me), continuing to sell online to CA residents without collecting the tax.
Finally, just as in 2009, “besides the obvious income, tax and job losses, the bill could also have a significant long-term impact” with small web-focuses businesses force to “leave California and new companies will choose other states for setting up their businesses, making California less competitive in the tech sector” [more here].
Focusing on Amazon, we’re missing the full picture here. The problem is that thousands of entrepreneurs will get their hands tied, and be forced to either more affiliate-friendly states, or face even less optimistic ramifications.