If you're a member of the Amazon Associates affiliate program and live in the state of North Carolina, today was the day you've dreaded: your Amazon Associates account has been officially terminated.
Thanks to legislation that threatens to force Amazon to collect sales tax on purchases made in North Carolina even though Amazon has no physical presence in the state on the basis that its contracts with North Carolina affiliates essentially constitute the legal equivalent of such a presence.
Although the legislation in North Carolina has not yet passed, it is being reported that Amazon affiliates in the state have been sent an email today stating that:
We are writing from the Amazon Associates Program to notify you that your Associates account has been closed as of June 26, 2009.
This is a direct result of the unconstitutional tax collection scheme expected to be passed any day now by the North Carolina state legislature (the General Assembly) and signed by the governor.
Obviously this is bad news for Amazon Associates in North Carolina, especially those who derive significant income from one of the internet's most popular affiliate programs. And they may soon find that they're not alone.
With so many state governments in the United States facing massive deficits, similar tax proposals are being considered elsewhere, including in California. Amazon has threatened that if California follows in North Carolina's footsteps, it will have no choice but to terminate affiliates in that state too.
Proponents of the kinds of tax legislation that Amazon and other online retailers are fighting against say that states lose billions of dollars in revenue annually because the Amazons of the world don't collect sales. They argue that the real impact on online retailers would be modest and would simply put online retailers on a level playing field with brick and mortar businesses. Amazon has countered that it's not just about money; it's about logistics and the Wall Street Journal reports that Amazon "would support a federal effort to streamline state tax laws and give signatory states the authority to require all sellers to collect taxes, regardless of whether they are physically present in those states".
Who is on the right side of argument? While some sort of internet tax regime in the United States might be reasonable, and should be expected, one can't help but think that the desperate rush of states to figure out ways to get their hands on additional revenue as they face fiscal disaster might just result in poorly-designed legislation that does more harm than good. Amazon's North Carolina affiliates have already learned that the hard way.
This is definitely an issue to keep an eye on if you're involved with online retail in the United States.
Photo credit: Poldavo (Alex) via Flickr.
Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.
11:03PM on 26th June 2009
I live in RI, they are considering the same thing. Just received this today from Amazon:
"We regret to inform you that the Rhode Island state legislature is preparing to pass an unconstitutional tax collection scheme that, if passed and not vetoed by the governor, would leave Amazon.com little choice but to end its relationships with Rhode Island-based Associates. You are receiving this e-mail because our records indicate that you are an Amazon Associate and resident of Rhode Island.
Please note that this is not an immediate termination notice and you are still a valued participant in the Associates Program. All referral fees earned on qualified traffic will continue to be paid as planned.
But because the new law is drafted to go into effect once enacted, we will have to terminate the participation of all Rhode Island residents in the Amazon Associates program on or before the day on which is it enacted. After the termination day, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com nor will we accept new applications for the Associates program from Rhode Island residents. "
Unfortunately, this state is being held hostage by the municipal unions and their egregious pay scale and benefits, so the state must look for new ways to extract money from the taxpayer.
Founder at AM Navigator LLC
5:33PM on 29th June 2009
Good post, Patricio. Your conclusion summarizes the essense of the problem well: "the desperate rush of states to figure out ways to get their hands on additional revenue as they face fiscal disaster might just result in poorly-designed legislation that does more harm than good". While some may have thought that Amazon was bluffing when they originally announced their plans of terminating NC affiliates, they weren't... Maybe the fact that they have now chosen to break their relationship with NC "associates" will make NC lawmakers think more carefully about this bill. After all, as I wrote a few days ago, 7% of zero is still zero, and with Amazon pulling out, the "$13 million a year" that NC was counting on are now gone.
Sara, sorry to hear that Rhode Island is now considering the same tax. Let's hope they will follow Maryland's and not New York State's example. In the meantime, do contact your state representative about the situation!
Founder at AM Navigator LLC
7:45PM on 29th June 2009
UPDATE ON RHODE ISLAND:
All Rhode Island affiliates of Amazon have just received the following piece of corresponence:
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We are writing from the Amazon Associates Program to notify you that your Associates account has been closed as of June 29, 2009. This is a direct result of the unconstitutional tax collection scheme passed by the Rhode Island General Assembly with a veto-proof majority. As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 29. We were forced to take this unfortunate action in anticipation of actual enactment because of uncertainties surrounding the legislation’s effective date. The governor could sign the bill — or have his veto overridden — any day now.
Please be assured that all qualifying referral fees earned prior to June 29, 2009 will be processed and paid in full in accordance with our regular referral fee schedule. Based on your account closure date of June 29, 2009, any final payments will be paid by September 1, 2009.
In the event that Rhode Island repeals this tax collection scheme, we would certainly be happy to re-open our Associates program to Rhode Island residents.
The Rhode Island General Assembly’s website is http://www.rilin.state.ri.us, the governor’s website is http://www.governor.ri.gov, and additional information may be obtained from the Performance Marketing Alliance at http://www.performancemarketingalliance.com .
We have enjoyed working with you and other Rhode Island-based participants in the Amazon Associates Program, and wish you all the best in your future.
Best Regards,
The Amazon Associates Team
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Founder at AM Navigator LLC
8:00PM on 29th June 2009
UPDATE ON HAWAII:
It has just been reported that Amazon, Zappos, Audible, Endless, and "several other smaller merchants" have sent out termination e-mails to their affiliates. "Unless vetoed" Hawaii's version of the Amazon tax will take "effect on Wednesday, July 1."
5:58PM on 1st July 2009
I don't live in RI, HW, NC, or CA, so I haven't been affected. But, I've been wondering how these moves by amazon/overstock/other online retailers will affect their own business and their relationships with the hard-working affiliates.
Affiliates is a signficiant traffic/revenue channel for those retailers. Some of the affiliates have their livlihood depending on their affiliate compensations. I understand why the retailers are fighting the state sales taxes, but shouldn't the retailers also be nicer to their affiliates who have generated millions of sales for them?
I wonder if amazon would turn off their affiliates if DL, NV or WY decides to collect online sales tax. Most of the super affiliates are probably registered in those states.
Founder at AM Navigator LLC
11:06PM on 1st July 2009
It has happened in the State of New York already when hundreds of merchants terminated their affiliates (see just a few examples here). Yesterday Overstock terminated California affiliates. Earlier Amazon, Zappos, Audible, Endless and other merchants terminated Hawaii affiliates. Shouldn't they "be nicer to their affiliates"?
ReveNews.com wrote that in the case with California Bill AB178, for example, lawmakers believe to be pursuing 2 objectives: (i) increasing the State's revenue, and (ii) heping brick-and-mortar stores. When affiliates are terminated neither goal is achieved. Since the same goals are stated in nearly every state that has proposed the bill, the same logic may be applied.
Will such decisions hurt the online retailers? They will, but it's their choice. Many merchants kept the New York affiliates on board, and are collecting and paying the tax.
The real issue is different. Affiliates are being singled out, and this is just not right.
9:46PM on 8th July 2009
Since I live in NC my association with Amazon has been terminated already. I was dismayed and wrote to every legislator my objections. This is quite typical, I must say, of NC legislature; the legislature that recently closed all mental health hospitals, turning the patients over to a confusing patchwork system of private providers, and is now desparately trying to find ways of firing tenured university professors. What a place to live in! I hope that the legislature comes to its senses (I would doubt it beacause they should have already) since the reason for the internet tax was to collect revenues and the revenue source through Amazon has completely dried up, negating thier effort. But I am not sure that the NC legislature is wise enough to see down the road until crisis strikes and the decisions are seen as shortsighted and against innovation.
Founder at AM Navigator LLC
11:14PM on 8th July 2009
Perry,
I feel for you.
Earlier today Overstock reported that they have also terminated NC affiliates. I commend you for your persistence in writing how you feel "to every legislator". Hopefully, they will learn from California and Hawaii. There is no good reason for any state to pass such a tax law.