Posted March 9, 2010 9:46 am by with 5 comments

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Being a resident of North Carolina I have had the experience of watching the state government take away an income stream for people in a time when income streams can be little more like a trickle. It did this through imposing a tax on Amazon affiliate sales in the state and Amazon essentially said “No problem, we’ll just remove the program from your residents reach”. I marveled at what can only be seen as utter stupidity on the surface (I say on the surface because that’s where I sit and have no other details) as the government pulled the rug out from under its own citizens thus removing dollars from the North Carolina economy over a dispute about the tax on those transactions. The state essentially threw out the baby, the bathwater and the tub. Way to go NC state government!

Now we have another state that is entering the Pantheon of short-sightedness: Colorado. Techdirt reports

You may remember last summer that Amazon shut down its affiliate programs in North Carolina, Hawaii and Rhode Island in response to new laws being put in place in those states, which would effectively make any Amazon affiliate an “official” representative of the company in that state, thus requiring that Amazon start collecting sales tax. This followed a similar mess in New York the year before. This is really short-sighted on the part of the states, pushing for additional tax revenue (of course). But it stretches the definition of what it means to have a physical presence in a state to the point where someone who is running an ad for you (all that an affiliate really is) is treated as an employee.

I don’t know what to make of this quite honestly. I would need to hear the entire argument from each states’ side to see if there is any kind of logic here. You are essentially telling your citizens who may not have other viable income that they can’t perform their job in our state. The state is telling them, “If you are doing this as a significant part of your income please get up and move away because your money is no good here”. Huh?

What are your thoughts on this kind of jockeying between states and Amazon? Is there a way that this could turn against Amazon? What if there is suddenly a slew of states who enact the same rules? Does Amazon keep removing itself from these states? Will Amazon affiliates need to secede from the Union or start their own state? How does Amazonia, the 51st state sound?

  • I’m sure that the states who have enacted this law are simply sitting back waiting for the other states to join in (as you point out). Then Amazon will have to decide which way they are going to go: abandon the affiliate model or pay sales taxes on all their sales. Not charging sales tax has been their competitive advantage vis a vis brick and mortar stores, so I wonder what their response will be.

    In this economy, states are all looking for more revenue streams (aren’t we all?). But shackling their residents isn’t a good idea either. But, I’m sure the potential sales tax revenue from Amazon far outweighs the income tax that they get from residents who are affiliates.

    Thanks for the interesting post.

    • I hear you on the income tax they would be foregoing but what about the total dollars that come to a resident that will be spent at local businesses in the respective states. Taxes are one thing but disposable income that is being sent to another state and another SMB’s coffers is the trouble.

      Thanks for coming by.
      .-= Frank Reed´s last blog ..SMB Social Media Adoption Rate Doubles =-.

  • Regardless of whether the states would like to tax Amazon, saying that an affiliate is a presence by the company in the state is completely ridiculous… it’s like claiming I should pay taxes in Illinois because I have family there. That has absolutely nothing to do with whether or not I earned income there, and therefore whether I should pay taxes there.

  • epc

    The notion that people will suddenly stop shopping at because in–state affiliates have been cut off is absurd.

  • Roger

    If all the states follow suit will create a lucritive offshore business. I for one am ready to move to the Bahamas.

    Or states who lack population will become havens for affiliates.

    Politicians always make the mistake thinking they can control behavior and people are static. We are intelligent beings and will find a way around these ill conceived money grabs.

    All states need to do is cut services, that’s we all have to do when times get tough. Bu then, policicians can’t buy votes.