California Affiliates Are Up the Amazon Creek

Unlike much of the speculation across the internet, it’s hard to see Amazon.com as the bad guys in yet another chapter of the great sales tax debate. With several states already feeling the sting of losing its affiliates’ status with Amazon over a desire to enforce what the online retailer claims to be an illegal sales tax law, California was given ample fair warning about what would occur if the governor signed into law a bill that, among other things, would require Amazon to collect sales tax from its customers in that state.

Without knowing what other and how many measures the bill contained, it is conceivable that other aspects of the bill brought before the governor were too important to stall on while debating with Amazon. In that regard, losing the affiliates’ ability to profit from links to Amazon on their websites may have been a necessary casualty. But no one can claim that the state government was not given fair warning through a letter from Amazon which included the date the affiliate program would be terminated if the bill was signed into law. Admittedly, Amazon warned its affiliates that their agreement would terminate on September 30, but then a follow-up email pulled the plug tomorrow.

Once again, the little guy is the clear loser. This will undoubtedly have a massive negative impact on small business owners and websites that relied upon every bit of income they could bring in, especially from a retail giant like Amazon. But if Amazon’s interpretation of the sales tax law is correct, the 1992 Supreme Court decision upheld that businesses were not to charge sales tax in states in which they did not have a physical business, such as a store, office, or distribution center. Those very affiliates are what the state governments have been claiming are physical businesses within their states, and therefore Amazon felt the need to pull their agreements in order to effectively shut down their California stores.

Charles Johnson, founder of the influential political discussion blog littlegreenfootballs.com and now-former loyal Amazon affiliate mentioned on his site’s Amazon sales tax discussion thread the following: “Amazon has a legitimate gripe with CA on this. That new law is VERY counterproductive. But at the same time, it’s not fair for Amazon to use their Associates as pawns in the fight – I don’t depend on the Associates program for my main income, but I’m sure that there are many who do, and this is a serious blow to them.”

Much of the negativity surrounding this case seems to be directed at Amazon for standing up for what it feels to be its protected rights under Quill v. North Dakota, but it’s very hard to believe that a lot of this is not aimed at taking down one of the largest retailers in the world.

Mercy Pilkington (2165 Posts)

Mercy Pilkington is a Senior Editor for Good e-Reader. She is also the CEO and founder of a hybrid publishing and consulting company.

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Mike Perry

A good article, but you miss one critical point. Amazon isn’t in agreement with the Supreme Court’s decision about a physical presence. They’ve got a huge distribution center in Texas, but threatened to shut it down unless they were exempt from having to pay sales taxes on already-sold items that went out from that Texas distribution center to Texas residents. Steve Bezos is as out-of-line with the law as these states are when they attempt to claim that Amazon affiliates give Amazon a physical presence in the state. To mention the legal niceties, Amazon affiliates clearly aren’t Amazon employees. If they were, the IRS would be insisting that they be treated as such. And if a business has no employees in a state, it certainly doesn’t have a physical presence there.

Amazon’s a bit like the late nineteenth-century robber barons of steel, rail and oil. They were so hostile toward their obligations as members of society, that we ended up with a lot of what would otherwise be unnecessary regulations just to keep them in line. Some laws, intended to reign in the bad guys, make life difficult for good guys. I suspect that, in the end, Amazon will have the same impact on our sales tax laws. We’ll end up with a federalized system that mandates payments to the purchaser’s home state. A lot of little business selling wine or speciality items online who ought to be exempt from such sales taxes be burdened with tracking and paying taxes thanks to Amazon’s greed.

For instance, at a time when oil was shipped by rail, the oil baron John Rockefeller used his influence over the Pennsylvania rail board to get a covert, dual pricing system. His oil shipped very cheaply. That of his opponents not only shipped at about twice as much, that excess income was secretly passed along to him. Rockefeller was a jerk who wanted to win at any cost, including finding ways to make his competitors pay for his cost of doing business. That eventually made him deservedly “the most hated man in America.” Fixing that sort of behavior meant a lot of meddlesome price regulation that interfered with healthy competition and innovation in the rail industry. That, in turn, left the railroad system less able to compete with trucks after WWII.

In much the same fashion, our state and local taxes are one of the ways we have chosen to pay for our schools and essential public services. Steve Bezos wants to have giant shipping centers in a community and in a state, without paying some of the taxes that provide his business with police protection and that educate the children of his employees. When Amazon demands the right to opt out of those payments, they are shifting some of their cost of doing business on to others, including local retail businesses. Like the ‘most hated’ Rockefeller before him, he wants his competitors to subsidize his business and fatten his profits.