Amazon Leaves Colorado Affiliates Out in the Cold

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cold_smallADOTAS – 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.

The Hearing Room ... packed to the gills

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.

11 COMMENTS

  1. “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.” I suggest you back up your claim with your sources.

    Frankly, I don’t believe it. I see Amazon doing exactly what it should. It remains to be seen how that will affect AMZN’s bottomline and share prices. AMZN’s last qtr was fabulous and is trading about $15 from it’s 52-week high.

    As a share holder, AMZN is still looking good.

    I personally believe AMZN and many other online retailers should absolutely boycott and fight this type of legislation. It is taxation without representation. It is symptomatic of run-away gov’t, over spending gov’t, and if not enough ppl fight gov’ts like this, the gov’t will grow totalitarian.

    Tell your CO Democrats to repeal the bill and never ever try that again.

  2. Companies like Amazon are incredibly short-sighted dropping their affiliates like that. Sure government is over-reaching…but the country is broke.

    Federal, state, and local governments spent, spent, and spent, choosing to ignore or prepare for the normal “bust cycles” that inevitably occur.

    Tax money is like free heroin to a politician. They never can get enough.

    Politicians are looking at Internet marketers and the goose that lays golden eggs.

    Like in the fable, politicians of every stripe will kill the golden goose thinking they are going to come out ahead.

  3. While the bill that passed doesn’t use the term “affiliate”, it describes the actions and functions of affiliates in the definitions. It therefore appears that David Asseoff and Adperio staff may be as much to blame for the situation as our legislators by not reading or perhaps not understanding that the function of the bill didn’t change simply by removing the term “affiliate”.
    Read the context of the bill. It’s not long, and you’ll see that affiliates are indeed referenced, and that no business would reasonably comply with 50 versions (1 for each state) of such requirements. Amazon took the only action that made good business sense – the very action they said they’d take if the bill passed.

  4. I think Amazon is doing what it should as well. Colorado’s cash problem isn’t due to lack of revenue it’s due to lack of spending discipline. Like almost every local, county, state and federal government department in this country. The real shame is that small business has to be hurt to make sure big government can carry on pillaging the populace.

  5. That the bill does not mention affiliates does not matter. The issue is that CO politicians were trying to regulate an out of state business. They have no authority to do this, interstate commerce is federal jurisdiction.

    Do you really thing customers would be okay with Amazon providing CO government with a list of their purchases? With in state tax collection the state gets the money, but they are not provided with a list of what you purchased.

    It is clear that this thing was going to end up in court. In court it is likely that CO would claim nexus due to these affiliate relationships. NC, RI, HI, and NY did the same thing. It is not so surprising that Amazon took steps to sever these relationships with the affiliates. They are simply protecting their business from being regulated by CO politicians.

    The current legislature caused this loss for your business.

  6. I would suggest Amazon Payment Services share/sell the software with other Merchant Accounts (Visa, MC, PayPal) and have them collect the Use Tax @ point of sale, then remit directly to the State (State pays related fees) States get instant funds, less bookwork for business, and the consumer (correctly) gets taxed.
    Amazon may be collecting tax for Target (a gold seller), but they do not for 3rd party sellers on Amazon. They expect us to treat sales as sales tax included, which is illegal in States like OH, WI, and MA.

  7. The law never keeps up with technology but in this case the law already is on the books and enforcement has been slow.

    It is arguable that Amazon Affiliates, who must agree to affiliate terms, do establish a taxable nexus based on that agreement.

    It is possible that each jurisdiction could charge Amazon with Failure to File for sales made by affiliates.

    If Amazon had filed Multi-State “no tax due” returns they could be charged with filing false and fraudulent returns.

    Problem is that if they have no tangible assets in that jurisdiction – the DOR could not lien/levy/seize. But cause big headaches for Amazon. Sales made by affiliates – from the start Amazon – are now taxes due with penalty and interest.

    Amazon must file/pay sales tax for sales made in the state of Washington.

    With their elaborate software that captures Credit Card info, delivery address, etc. it would not be too difficult for them to file multi-state tax returns by recording tax via zip code.

    They must presume that other affiliates, in “currently” non-enforced jurisdictions will pick up the sales.

    All sales tax states will eventually enforce this law and Amazon will change their policy and start collecting/remitting tax – or have no affiliates at all.

  8. Why doesn’t the legislation target the affiliates directly? Colorado based affiliates are perfectly positioned to add the sales and use tax to the cost of their products when shipping to Colorado addresses.

  9. How about we just vote out all of these socialist big government politicians and take our government back from these idiots.
    How about the government just spend less and downsize, we do not need these pinheads running, or should i say ruining, our lives.

  10. Maybe Amazon had a more oblique motivation.

    What if Amazon decided that, compliance costs for Colorado affiliates, were greater than the profits from those affiliates?

    The tax issue could be both a CYA (if the law is interpreted as costing Amazon) and also an excuse to dump less-profitable affiliates(?)

    This might be distorted by distribution of high-volume affiliates in US coastal areas. But maybe they aren’t immune, either.

    On the third hand, some affiliate in New York City, Chicago, St. Louis, Kansas City, and some others could relatively easily go across a state border into a more friendly state. Or just open a mailbox service account and pretend they did.

    Lastly, I wonder how much of Amazon’s revenue actually come from its enormous affiliate base? Sure, it was important a few years ago. But…

    I know that, several recent time I found interest in a book or movie, it wasn’t from a spur-of-the-moment click. But, rather , I went to Amazon.Com directly or through Google. So that, a purchase would have bypassed the whole affiliate and tax mess.

    Maybe Amazon is just tired of the affiliate hassle?

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