Amazon Shutting Down Colorado-Based Associates Over Sales Tax Issue

from the tax-avoidance dept

Mon, Mar 8th 2010 4:03pm — Mike Masnick

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.

It appears that some states still haven't gotten the message. Michael Long sends over the email he received from Amazon, alerting him that Colorado has now passed a similar law, meaning that no one in Colorado can be an Amazon affiliate any more. Though Amazon is being a bit disingenuous in saying "no other state has similar rules," when other states have, indeed, passed similar rules, and many others are considering similar rules as well.

Of course, this strategy does risk backfiring on Amazon, as it's effectively using its affiliates as pawns in trying to get the state government to repeal this law. The alternative, of course, is that the affiliates just jump ship to another provider.

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Filed Under: affiliates, colorado, taxes
Companies: amazon

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sehlat (profile), 8 Mar 2010 @ 4:35pm

"jump ship"?
That rather assumes that other providers will accept associates from states with such laws and have to go to the expense and trouble of keeping track of bunchteen federal, state, and local tax regimes.
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zellamayzao, 8 Mar 2010 @ 4:43pm

And thats why....
I tend to spend the rest of my life in delware where there is no sales tax. Just yet anyway. Im sure some money hungry politician will have some great idea as a way to make delaware more money by imposing a sales tax when all we probably really needed is to have some fiscal responsibility with the morons running my state.
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Haywood (profile), 8 Mar 2010 @ 4:53pm

Don't they compare notes
So far no one has collected a penny from these failed attempts, and likely have lost revenue as the affiliates will do less business in the state, maybe even shut down completely. If the latter is the case they lose big time trading taxpayers for unemployment recipients. Not to mention all the sales tax they lose as these former wage earners go on the poverty plan to survive.
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AZ Shopper, 8 Mar 2010 @ 6:26pm

Confused
I know that Amazon has a huge distribution center/warehouse in Goodyear, AZ (30 miles west of Phoenix). However, they don't charge sales tax in Arizona.
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FarmerBob (profile), 8 Mar 2010 @ 6:43pm

That'll explain why there was no tax on the Amazon purchase I made a couple of days ago. But the way I heard it was to happen in Colorado, was that the vendor was to inform you of the tax on your purchase, you are to keep track of it and you at tax time, have to fill out an additional form and pay the tax with your Income Tax.

I didn't think it would work either.
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Mike C. (profile), 8 Mar 2010 @ 7:13pm

A little sloppy this time Mike...
While I normally agree and like your discussion of issues, I think you missed a few points on this one:

- Colorado is NOT requiring Amazon to collect sales tax due to an affiliate presence or "nexus". The new requirement is that Amazon must INFORM THE CUSTOMER of the tax they should be paying. I believe the intent is to have the customers pay the tax as a "use tax" with their income tax filing.
- Additionally, for online merchants making more than $100,000, Colorado can request data on annual purchases broken out by individual residents, but not individual transactions.
- Any association between Colorado associates and sales tax collection was actually REMOVED from the bill

The way I see it, Amazon is doing this as a political statement and not as a way to side-step new tax collection requirements. They will still have to code sales tax calculations for Colorado whether they have affiliates or not. They just don't have to collect said tax.... yet.

Additionally, while you feel their "no other state" comment is "disingenuous", I believe it to be true. Is there another state that requires online merchants to calculate but not collect sales tax as well as track total sales by individual per year?
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Anonymous Coward, 8 Mar 2010 @ 7:17pm

Re:
I am pretty darn sure it works this way in a lot of places where you have to pay sale tax for your state if none was collected at the time of purchase. I did not know about this till an audit (hit me while living in 2 different states).
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Freedom, 8 Mar 2010 @ 9:57pm

About time...
One of the great things about Amazon and other large multi-state online companies is that they are equals or maybe even stronger than those folks that want to add taxes at the state level. It is rare that you see a company or a group that can stand up against ever increasing tax collections. Sure I understand that this isn't technically a new tax, but it is great to see a company stand up and go toe to toe with the tax whores.

Freedom
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Anonymous Coward, 8 Mar 2010 @ 11:01pm

Amazon should be principled enough to pull out of New York. But they won't, cause New York has 19 million people.
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Andrew D. Todd, 9 Mar 2010 @ 3:48am

Amazon is Deliberately Killing Off the Affiliate Programs.
I suspect "affiliate programs" have outlived their usefulness for Amazon. Affiliate programs were useful at a time when most people were not accustomed to buying things online. However, the market is approaching saturation. Suppose you see an affiliate link on a website, and click through to an Amazon page. You can then copy and paste the product description somewhere else. For example, you can copy and paste it into an E-Bay page, and this is less difficult than setting up a new buyer account, if you don't already happen to have an Amazon account. It is only easy to buy from Amazon if you are already an Amazon customer, that is, if your name, address, and credit card number are already on file. Amazon may very well have come to the conclusion that an affiliate program is an exercise in paying commissions on sales it would have gotten anyway. Amazon's intransigence is rather like Google's intransigence vis-a-vis China. I think Amazon decided internally that they would lower the boom at the first sign of trouble.

As for online merchants, a serious online merchant is willing to _move_ to an advantageous state. Moving to a more favorable tax regime is less risky than moving to take up a new job (which may turn out to be an optical illusion), or to enroll in a school. Again, I doubt that Amazon is really unhappy about weeding out the amateurs, the ones who are unwilling to install suitable automation to get their processing costs down.
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enrolled agent exam, 9 Mar 2010 @ 6:59am

States in Trouble
Don't expect AZ to be the last. CA is working on an "Amazon" tax of their own. Fortunately, the Governator veto'd it the last time around.
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Greg Knaddison (profile), 9 Mar 2010 @ 7:38am

the trend is headed - but which way
As more and more people buy online our states/cities will get less and less revenue from local sales tax. Eventually I think that all cities and states will start having similar laws requiring online merchants to advise and/or collect the taxes.

Rather than fighting this the merchants should figure out how to best support it. If Amazon said "OK, we'll do this, but we want Colorado to make the process dead easy." then that would be a real win for all internet retailers.
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Ryan, 9 Mar 2010 @ 8:19am

Re: the trend is headed - but which way
How is it a win for retailers to have to charge more for sales tax - or for the public, for that matter? There is absolutely no reason whatsoever to charge sales tax online, anymore than there's a reason for the government to impose a tax on blondes - to get more money, which more often than not doesn't work thanks to that nasty Laffer curve. Sales taxes were originally ostensibly imposed to cover the costs of infrastructure needed to travel to the store location; part of what makes the internet so great is that this overhead no longer exists. Paying sales taxes on the internet is just like paying CD prices for digital music or paying for online newspaper stories, except that in this case there isn't even a special interest to be harmed by it.

The answer is not to ask the public to bend over everytime politicians want to impose a new tax, but to ask politicians not to spend more every year.
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nasch (profile), 9 Mar 2010 @ 8:32am

Re: Re: the trend is headed - but which way
Sales taxes were originally ostensibly imposed to cover the costs of infrastructure needed to travel to the store location; part of what makes the internet so great is that this overhead no longer exists.

That's not entirely true - the item is still driven from somewhere to your house. But maybe the shipping company is paying taxes to cover that.
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known coward, 9 Mar 2010 @ 8:35am

Amazon should
collect sales taxes for the appropriate state based on the ship too address. It is past the time for internet sales to have an advantage over brick and morter shops.

You can be against sales taxes, that is fine, but as to who has to collect them, it is a no brainer. The tax has to be collected by every retailer in the world who sells in the US.
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Jim H, 9 Mar 2010 @ 9:36am

Tax Until There is Nothing Left
Don't blame Amazon. The state of Colorado caused the "layoff" of 4,200 people.
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btr1701 (profile), 9 Mar 2010 @ 12:00pm

Affiliates
The Virginia legislature is also considering a bill to require Amazon to start collecting state sales tax based on the affiliate-as-employee theory.

I guess there won't be any Virginia affiliates for much longer, either.
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Overcast (profile), 9 Mar 2010 @ 1:59pm

Yet another problem - created by politicians.

It seems politicians create more problems, than they solve.
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Michael Long (profile), 9 Mar 2010 @ 2:06pm

Re: Re: Re: the trend is headed - but which way
That impact is negligible.

Would you rather have one truck on the road making least-distance-travelled optimized deliveries to 50 people, or have those 50 different people all climbing into their SUVs and heading off to 50 different destinations to buy something?

The later has significantly more impact, wouldn't you agree?

Sales tax also helps cover the services (roads, sewage, police, fire, etc.) provided to all of those local stores and businesses.
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sjclynn, 9 Mar 2010 @ 4:38pm

The CO law is different
The strategy taken by the states led by NY was to create a business nexus based on the existence of the affiliate. In CO the legislation doesn't involve the affiliates but places requirements on online businesses selling into the state.

The law requires the business to notify customers in CO that they owe tax to the state, send them and annual summary and, if the company does over $100K in a year, submit the buyer's information to the state. I suppose that we could call that the "rat on" provision.

What I am at a loss to understand is, what gives Colorado the right to pass legislation that that specifies what a business with no business nexus in the state must do? How are they going to enforce it? Isn't this a little like Italy convicting Google execs?

Then there is the privacy concern. I am not sure that I am comfortable with a business sending a list, or even a summary, of what I purchased from them to the state government or anyone else for that matter. How long before we need to submit a SSN to buy a book?
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Very informative article here .I did not know this issue before.Now i got to know everything about amazon. It is very good website,and i have been using it since one year.I did not face any problems in amazon .So it is bad to know about sale tax issue of it .I hope it will be resolved very soon.Thanks
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I don't think the amazon affiliates program has outlived its usefulness. It is true that people no longer need to be convinced to purchase items on-line, but amazon is facing lots and lots of competition on-line now. Also, iPad textbooks are competing with Kindle titles.
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I think this will hurt the amount people making via amazon in the Colorado area.
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Tax has become the major issue in most of the business where they have to pay the tax which have to be paid according to the government.
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content writer, 10 Nov 2010 @ 10:02am

Tax and other annoyances
I was one of the affiliates affected by this. It's an annoyance, but I never made huge amuonts of money from Amazon's affiliate program so not a huge deal.
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SEO Consultant, 18 Nov 2010 @ 4:30am

Yeah I've never been that involved either! Good article though.
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I think this will hurt the amount people making via amazon in the Colorado area.
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John Q, 27 Nov 2010 @ 9:49pm

Ridiculous that Amazon should carry on this game of tax avoidance. If it wants state business, it should pay the taxes in that state. Otherwise, stay out, and stop destroying independent booksellers.

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Dave Lease, 7 Dec 2010 @ 4:15am

I don't think it is fair they are passing this rule which will effect everyone who wanted to be an Amazon affiliate in Colorado. How ridiculous that you have to be classed as "an official representative" when you are an affiliate!
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I am pretty darn sure it works
I am pretty darn sure it works this way in a lot of places where you have to pay sale tax for your state if none was collected at the time of purchase.
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The strategy taken by the states led by NY was to create a business nexus based on the existence of the affiliate. In CO the legislation doesn't involve the affiliates but places requirements on online businesses selling into the state.

The law requires the business to notify customers in CO that they owe tax to the state, send them and annual summary and, if the company does over $100K in a year, submit the buyer's information to the state. I suppose that we could call that the "rat on" provision.

What I am at a loss to understand is, what gives Colorado the right to pass legislation that that specifies what a business with no business nexus in the state must do? How are they going to enforce it? Isn't this a little like Italy convicting Google execs?

Then there is the privacy concern. I am not sure that I am comfortable with a business sending a list, or even a summary, of what I purchased from them to the state government or anyone else for that matter. How long before we need to submit a SSN to buy a book?
[ link to this | view in thread ]
Cevdet Bey Ve Oğulları, 9 Jun 2011 @ 7:06am

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Amazon should be principled enough to pull out of New York. But they won't, cause New York has 19 million people.
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Re: Re:
I would have expected this... but in all honesty, Amazon is big enough that they hardly need affiliates anymore.

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Re: And thats why....
Exactly how much money was this supposed to raise for the state? 4 other states tried this same thing before Colorado, and Amazon as well as others cancelled their affiliate marketing agreements in those states too. It was insanity for the lawmakers in Colorado to expect anything different. What a waste of time and resources...from Chris of UK jobs and US jobs thanks for sharing such an informative info like this.Very interesting indeed.
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Now how many states?
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