Dear Legislators,
The Amazon Tax is unconstitutional and is a desperate measure to raise tax revenue.
First, the law is unconstitutional because it ultimately would require sellers with no physical presence in your State to collect sales tax based exclusively on contracts with affiliate marketers that reside in your State.
Second, while your intent to raise needed funds to run your State during these difficult economic times deserves considerable respect, the Amazon Tax won’t raise the tax revenue you intend it to raise.
I am aware that the intent of the Amazon Tax is to use the presence / residence of “affiliates” in a particular State to require an online business to pay State sales tax.
The flawed logic goes….if an online business has an affiliate program and that program has affiliates who reside in a given State then the State can require the online business to pay sales tax based on a nexus argument. The allure of this type of legislation is that the perceived amount of sales tax revenue that could be generated can be several hundred million dollars per year, especially in larger States like New York and California.
Here’s the problem.
The Amazon Tax legislation already passed in New York and under consideration in numerous States around the country REQUIRES that the online business have affiliates within the State in question.
While this poses a hurdle to online businesses wanting to conduct affiliate marketing business in a given State the remedy to this problem for online businesses is easy: Terminate all affiliates that reside in a State where the legislation has passed…then the legislation fails and the online business doesn’t have to charge sales tax.
While both the online business and the affiliate marketer lose so does the State who passed the legislation.
Let’s do the math.
The affiliate marketer loses because he or she is terminated from the affiliate marketing program and as a result they either go out of business or move to another State to conduct business. That’s a loss for the State and a loss for the affiliate.
The online business loses because they are deprived of the revenue that was being generated by affiliates within the given State (remember, they will be terminated from the program because they resided in a State where the Amazon tax was passed). In addition, the State loses because the law didn’t work as intended. No affiliates in State = no power to levy sales tax.
The State loses because (1) they don’t collect the revenue they intended to collect, (2) they contribute to the loss of thousands of jobs and potential closure of a similar amount of affiliate marketing businesses, and (3) they lose income tax from the employees and businesses that once conducted business in their State.
The entire affiliate marketing community can sympathize with the fact that the last 12 months have been very difficult economically.
In fact, many affiliate marketing businesses have been forced to lay off employees, while just about all of us have taken unprecedented steps to reduce costs.
During this challenging time we need to take a step back and not act out of desperation.
The Amazon Tax is a desperate measure that will not fulfill its intended consequences.
As a example, Amazon.com recently wrote a letter to the State of California suggesting that it will terminate all affiliates from the Amazon Affiliate Program that reside in the State of California to avoid having to charge its CA customers sales tax.
We all lose.
It’s fair to conclude that other online businesses will follow Amazon’s lead.
The end result will be that the so-called Amazon Tax will fail.
During this difficult economic time legislators around the country must look elsewhere to raise tax revenue.
The Amazon Tax is a dead end piece of legislation.
Think twice before you support this legislation.
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