ADOTAS – Colorado affiliates are feeling a chill. . . and it’s not the snow. It’s from Amazon.com’s drastic, seemingly unnecessary, decision to terminate all relationships with affiliates in the state of Colorado.
It all started as Colorado Democrats, led by Governor Bill Ritter, attempted to push through a slew of bills, all focused on eliminating sales tax exemptions, thus raising tax revenue for the cash-strapped state. One of these measures was House Bill – 1193, designed to force online retailers like Amazon.com to collect sales tax on online purchases.
Online retailers have been able to avoid collecting state sales tax because they do not have any stores or warehouses in that particular state. When sales do not originate from a physical presence in the state, no “nexus” is created to require that state sales tax be collected.
In HB- 1193, Colorado legislators were attempting to create nexus through affiliate relationships. If passed as originally drafted, HB-1193 would have forced online retailers like Amazon to collect Colorado sales tax due to the physical presence of affiliate relationships based in the state.
Upon learning of the bill, my Denver-based company, Adperio, sent the majority of our employees down to the state capitol building in a show of force to protest the bill. It was clear that legislators were shocked by the turnout; more than a hundred people showed up, flooding the hearings room and hallways outside.
In addition to Adperio employees, Colorado affiliates, several key staff from ShopAtHome, and representatives of the Performance Marketing Association came to testify against HB-1193. Adperio also organized a massive effort to voice our concerns to state legislators through phone calls, emails and even social media channels, including Facebook and Twitter. To the politicians’ credit, they listened.
The tremendous show of support and hundreds of emails, phone calls and Facebook posts made a significant difference. Our CEO, David Asseoff, key staff, and others met with state legislators and helped create an amendment that removed affiliates from the bill completely. Affiliates were no longer going to be used to create nexus; in fact, the word “affiliate” itself is nowhere to be found in the final version of the bill.
We waited anxiously and were hugely relived when the bill passed the House and the Senate and then was signed into law by Governor Ritter. Celebrations were planned. A week later we were shocked to receive an email notification from Amazon, saying they were still terminating relationships with Colorado affiliates, even though affiliates were no longer mentioned in the bill.
The bill that passed, required Amazon to notify Colorado consumers that they owed state sales tax, or to provide records of those purchases to Colorado, but that has nothing to do with affiliates. Amazon described the bill as being “burdensome”. Now, even though Amazon fired all of its affiliates in Colorado, it still faces the same reporting/notification issues as required by the bill. Nothing has changed for Amazon.
Amazon terminated Colorado affiliates for two reasons:
1. To attempt to pressure Colorado to repeal the bill entirely, in order to relieve themselves of potential paperwork/ notification issues. Affiliates were simply a weapon that Amazon is using to bully the state; shut down thousands of small businesses(affiliates) and you can expect the public to begin questioning the new bill.
2. To send a message to all other states considering similar legislative measures. If you pass any legislation requiring internet retailers to collect state sales tax, Amazon seems to be warning, we will terminate all affiliates in your state as well.
Why is this such a big deal to Amazon? One theory is that Amazon views the lack of state and local taxes as a competitive advantage. I would argue that consumers really use Amazon because of competitive prices, the enormous selection, and the convenience of shopping from home.
In an informal poll, no one I spoke with indicated they would stop using Amazon because of an additional state sales tax. Many are not even aware if they pay taxes or not when making online purchases.
Is the collection of sales tax a technical challenge for Amazon? New York passed a similar bill and Amazon has been collecting sales tax in New York for about a year. Other sources have claimed that Target, who is collecting state sales tax, is using technology created by Amazon. This suggests that the collection of sales tax is not that daunting a technological task.
Amazon is stubbornly putting off the day when it will be the norm to collect state sales tax in every state. That day is not that far away. It is just mind boggling that Amazon is creating all of this tremendous ill-will — terminating affiliates one state at a time, losing business, and damaging relationships — only to put off the inevitable. It’s more than just short-sighted.
It’s bad business. . . From A to Z.