Overstock follows Amazon’s lead in dropping affiliates*

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affiliate1.jpgADOTAS — Overstock has dropped affiliate advertisers in California, Hawaii, North Carolina and Rhode Island Co sent notices to all of its affiliate advertisers in California, Hawaii, North Carolina and Rhode Island.

*UPDATED:

On Monday, Amazon said it was ending its business relationships with marketing affiliates in Rhode Island so the online retailer could avoid collecting sales tax in the state. The Legislature recently passed a bill forcing companies to collect taxes *if they have online-marketing affiliates, which get a sales commission by featuring links to outside e-commerce sites on their own Web sites, in the state. This comes shortly after a similar bill in North Carolina prompted Amazon to end its relationship there.

A similar move last year in New York prompted Amazon, which is still there, and Overstock, which isn’t, to file a lawsuit against the state, which is still pending, arguing the tax law was unconstitutional.

According to the WSJ, Rebecca Madigan, founder of the affiliate trade group Performance Marketing Alliance, estimates there are some 2,000 online affiliates in Rhode Island, who pay about $3 million in state income tax.

“We’re seeing small businesses being hit,” she told the WSJ. “They are the collateral damage through all of this legislation, which inaccurately classifies affiliate marketers as sales agents” rather than advertising channels.

Amazon needs to find a different way instead of leaving people flat.

 *Corrected from an earlier version.

2 COMMENTS

  1. Just to clarify your final paragraph and your earlier statement that “The Legislature recently passed a bill forcing companies to collect taxes from online-marketing affiliates” this isn’t accurate. Neither affiliates nor merchants are the source of sales tax revenue. Affiliates collect no payments from the consumer and merchants merely collect and remit sales tax when required. Payment of taxes falls entirely to the consumer, which is in fact the crux of the problem. If you as a consumer make an online purchase from ANY retailer (not just Amazon) and you are not charged sales tax, you are required by law to keep track of how much you should have paid and remit the proper amount, called use tax, to the state with your income taxes. Although most states have had use tax laws on the books for a very long time, most consumers have no idea the law even exists, so the use tax goes unpaid and uncollected. States believe that by changing the definition of ‘nexus’ to force out of state merchants to collect the tax will solve the problem.

    The main issue with that is two fold. First, nexus has already been defined by the Supreme Court in the case Quill v. North Dakota as requiring a “physical presence” within a state. Affiliates are merely advertisers. They are not sale reps or employees of the companies they place banners for on their sites. States want to redefine nexus to include this sort of commission based advertising, despite the fact that it goes against the pre-established definition. Second, affiliate relationships are at-will and most programs can remove all of their affiliates in a particular state with a few clicks. Without affiliates in a state with one of these new laws passed, there is no legal need for them to collect and remit the sales tax and for many merchants, a much simpler soultion than trying to implement sales tax across multiple zones. (Nationwide, there are more than 12500 sales tax zones according to Avalara.)

    The Supreme Court in its findings noted that “Congress is now free to decide whether, when, and to what extent the States mayburden interstate mail order concerns with a duty to collect use taxes” which has led to the formation of the Streamlined Sales Tax Project, or SSTP. This push for a more uniform sales and use tax system may be the answer to the problem as twenty-two states have already adopted the simplifications measures needed for enactment. Amazon has stated its support of the SSTP in a letter to California legislators.

    No one is arguing that the use tax should not be collected, but it is unfair to target only the affiliate marketing community through these bills, especially when a more fair, equitable solution is at hand.

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