Last year, New York decided to aggressively pursue a sales tax rule already on the books by expanding the definition of venue to include companies with affiliates physically present in the state. Many vendors, Amazon.com included, made a lot of noise about pulling their affiliate program; interestingly, Amazon.com didn’t go anywhere. They did, however, challenge the imposition of the tax and lost. A strongly worded opinion from the court noted that Amazon didn’t “even come close” in successfully arguing that the affiliate programs were merely advertising. At the time, I posited:
What does it all mean? I think there will be two significant outcomes:
1, Online retailers will begin to rethink the way that they do business with affiliates – especially in a tough economic climate.
2, Other states will jump on the bandwagon. California, anyone?
Sure enough, in May of this year, California began exploring ways to enforce collection of sales tax from online sales – clearly a wink at the existing New York victory. Curiously, Amazon.com has remained relatively quiet.
But of course. Those are, after all, the big boys. New York and California are two of the largest, wealthiest states. Pulling affiliate programs out of those states, in my opinion, would be dramatic and costly – especially considering that the tax wouldn’t come out of Amazon’s pocket.
But say you wanted to make a statement, fire a warning shot to other states that might be considering similar behavior… What would you do? If you were Amazon.com, maybe you’d start pulling your affiliate programs from smaller states.
Sure enough, in May of this year, many Amazon.com affiliates in North Carolina received this letter via email (provided to me from an affiliate):
We regret to inform you that the North Carolina state legislature (the General Assembly) appears ready to enact an unconstitutional tax collection scheme that would leave Amazon.com little choice but to end its relationships with North Carolina-based Associates. You are receiving this e-mail because our records indicate that you are an Amazon Associate and resident of North Carolina.
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 – which could happen in the next two weeks – we will have to terminate the participation of all North Carolina residents in the Amazon Associates program on or before that same day. 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 North Carolina residents.
The unfortunate consequences of this legislation on North Carolina residents like you were explained in detail to key senators and representatives in Raleigh, including the leadership of the Senate, House, and both chambers’ finance committees. Other states, including Maryland, Minnesota, and Tennessee, considered nearly identical schemes, but rejected these proposals largely because of the adverse impact on their states’ residents.
The North Carolina General Assembly’s website is http://www.ncleg.net/ , and additional information may be obtained from the Performance Marketing Alliance at http://www.performancemarketingalliance.com/ .
We thank you for being part of the Amazon Associates program, and we will apprise you of the General Assembly’s action on this matter.
Unconstitutional, you say? A Manhattan Supreme Court judge sure didn’t think so.
When I asked via twitter for affiliates in North Carolina to comment on the proposed pull out, I received a number of similar responses. One commenter summed up the sentiment nicely:
I run several web sites that sell books. I’ve been working on these sites for 2 years now, building them up with good content. At the start of June, for the first time ever, I started seeing the fruits of my efforts. I started seeing a decent return coming in from my Amazon referral fees.
So you can imagine how devastated I am now that my account is closed. My account had close to 200 outstanding orders that hadn’t yet shipped yet when the account was closed. That’s money I’ll never see. On top of that, today I checked my account (as of this writing we can still login to our accounts) and discovered that several high priced electronics had been purchased through my link. You can imagine how this made me feel. Right now I’m sitting here with a throbbing headache – I think it’s stress-related.
I hope the NC legislature removes Section 27C.2 from the proposed budget bill. I’ve really enjoyed being an Amazon affiliate and don’t want the relationship to end.
North Carolina, for its part, isn’t backing down, just as New York held its ground. The online retailer maintains that the tax is constitutional. It’s interesting that Amazon.com has chosen to argue that it isn’t constitutional in the media but so far as I know, it hasn’t made that argument in a North Carolina court. Maybe, just maybe, it’s not an argument that Amazon.com thinks actually has much merit. But then, I’m just speculating.
With one state down, Amazon.com has forged on. The online giant also cut ties with Rhode Island and today, it just announced that it will cut affiliate ties with Hawaii.
Quite the powerhouse line up (with apologies to my readers in Rhode Island, Hawaii and North Carolina). Are you perhaps seeing a pattern?
I know, I know. Amazon.com surely has some wonderful explanation for its cherry picking. I’m sure of it. And I’d really love to hear it. Because otherwise it sounds like, well, you know… that some states are just a little more valuable to them than others.
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