Amazon Terminates Illinois Affiliates

http://directmatchmedia.com/amazon-terminates-illinois-affiliates.php

by skitzzo • 15 years ago

91 89 15 years ago

logic• 15 years ago

I just received my termination email.

I believe I have a whopping $4 owed to me at this point, so I'm not upset about losing a large amount of revenue; I just have a difficult time understanding the rationale here.

I'm an affiliate: I direct traffic to Amazon, nothing more. Or put another way, I'm a third-party marketing arm; I don't participate in purchases as either buyer or seller. But apparently, I'm involved enough to constitute a physical presence for Amazon in Illinois?

If I apply this same logic to out-of-state companies contracting with marketing firms here in Illinois to promote their brand here and elsewhere, I get even more confused about the message being sent.

Perhaps it's best if I don't think about it very hard.

Vivtek6• 15 years ago

Might be better yet to send a strongly worded letter to your statehouse rep.

glesica• 15 years ago

Won't work, Wal-Mart probably already bought everyone in Springfield.

eykanal• 15 years ago

The message being sent is simple; Amazon is receiving an unfair competitive advantage by not paying taxes (all their prices can be lower), and the legislature is trying to figure out some way they can "force" Amazon to have a local presence through people like you. Amazon, being the 800-lb gorilla they are, just said the equivalent of, "I'm taking my ball and going home."

They did this because you were the "arm" of Amazon the legislature was trying to attack. In Amazon's eyes, it's easier just to cut off that arm than to try to support it and pay higher fees.

thaumaturgy4• 15 years ago

> Amazon is receiving an unfair competitive advantage by not paying taxes...

I don't understand this reasoning. They have to pay a shipping tax -- that is, regardless of the price of the item, the buyer is going to have to have it shipped to their home. If Amazon's offering free shipping, that just means they're choosing to absorb the cost, which eliminates a competitive advantage; if the buyer pays shipping, then that increases the total cost of the item, and again, that eliminates Amazon's competitive advantage.

I don't think this has anything to do with unfair competitive advantages, and everything to do with states simply looking for ways to grab more tax revenue ... so that they can turn around and offer it as cuts to other businesses, of course.

burgerbrain2• 15 years ago

What these government numbskulls don't seem to understand is that what Amazon is doing isn't fundamentally any different from what Sears was doing over a century ago with their mail-order catalog.

Amazon it's receiving an "unfair" anything, they are operating well within the law and long established acceptable business practices. Politicians are just being greedy, plain and simple.

raganwald• 15 years ago

If an affiliate in Illinois constitutes a presence for Amazon in Illinois, what happens when Amazon Adsense Ads appear on a web site hosted out of Illinois but run by a blogger who is a resident of Illinois? By my reckoning, Amazon is paying Google who in turn pay a resident of Illinois. How is this different from an Amazon affiliate?

evgen• 15 years ago

Amazon has no business relationship with the person running the ad, their relationship is with Google. The two companies are distinct entities and Amazon can easily claim to have no control over what Google does (this last bit is important because when people try to be clever and create shell companies to get around various regulations the government will try to "pierce the corporate veil" and argue that the only purpose of the shell company is to act as a hidden agent for the original company.) In the case of affiliates the states are claiming that the affiliates are acting as agents on behalf of Amazon and therefore Amazon has a physical presence in the state via those agents.

chopsueyar5• 15 years ago

There was a HN post about how AdSense affiliates in Philidelphia had to pay a large filing fee for being considered a business in the city.

http://news.ycombinator.com/item?id=1624250

cypherpunks01• 15 years ago

For a couple years now, New York State has gotten away with forcing Amazon to charge sales tax via a similar state law regarding affiliates, does anyone know why amazon implemented the sales tax instead of dropping affiliates in that case?

ikujythujik• 15 years ago

Cost of lost sales in NY is lower, lots of people in NY still buy from Amazon rather than Walmart And Amazon didn't want a test case about whether having other services in NY such as advertising agency or stockbrokers, lawyers constituted a presence

pmorici• 15 years ago

It looks like they have a subsidiary based in NY; http://www.amazon.com/Locations-Careers/b?ie=UTF8&node=2...

Could also be their NY affiliates are more lucrative. There are a lot of large media type companies that have a presence in NY so maybe the referrals they bring in out weight the amount of sales lost from NY residents because of the need to charge sales tax.

cookiecaper• 15 years ago

I don't, but a guess may be that Amazon has some physical facilities in New York like a warehouse or office, meaning they can't say "they're making us pay tax even though we don't exist in the state and just mail people stuff" like they're saying in this case.

I don't know if Amazon has offices in New York or not, but that's my immediate guess.

stevie_wilks• 15 years ago

You are correct sir: http://bit.ly/hFkxpK

geuis• 15 years ago

Are there many states left that Amazon does allow affiliates from?

sorbus• 15 years ago

Per the article, everywhere except Colorado, North Carolina, and now Illinois.

DianeKennedyCPA• 15 years ago

The so-called 'Amazon law' is in 4 states now: New York, Rhode Island, North Carolina and now Illinois.

There are a number of states considering it, though, including California.

MediaBehavior• 15 years ago

I'm pretty sure you can add Colorado: This being the reason I am not permitted by Amazon to become an affiliate.

michaelpinto• 15 years ago

How many states does it take Amazon to lose until they change their policies? Yes I understand the legalities of it — but there is something very strange about the fact that if I buy a 99 cent app from Apple they can collect the extra sales tax but if I purchased a $99 physical item from Amazon that they feel it's too hard.

As an affiliate here in NY I run a small side biz that generates a great deal of revenue from Amazon and I hate where this thing is going (what kills me is that it's a decent source of income — but not enough to pack up my bags and get a new address).

Vivtek6• 15 years ago

The difference is that Apple presumably has a legitimate, taxable presence in NY, whereas Amazon has none in Illinois.

dedward• 15 years ago

It's also about running the affiliate programs themselves....

Amazon isn't stupid - who knows what the specific strategy is here, politically or otherwise - they've capitulated in some states, turfed others - it all probably comes down to the numbers.

storborg3• 15 years ago

They probably won't ever change their policies--I would venture to guess that the margin they gain from the affiliate program is less than 8% of their total revenue (which is very approximately what they would lose if they were forced to collect sales tax).

Encosia2• 15 years ago

Ethics aside, this seems extremely shortsighted on the part of the legislature. Amazon might compete strongly with local big boxes ("Main Street", my foot), but how much shipping business (and resulting jobs and tax revenue) is ultimately created by Amazon's sales in IL?

A1kmm2• 15 years ago

If the shipping is paid for by Amazon out-of-state, I'd be surprised if they see any sales tax from it.

Amazon hasn't stopped shipping to Illinois - they have simply stopped allowing affiliates in Illinois, so the decision is unlikely to change the amount of shipping. If they did manage to force Amazon to collect 10% sales tax, people might spend at most 10% less, because collecting sales taxes reduces their means, but all of that would be captured by the state immediately, rather than more taxation through indirect mechanisms like increasing the number of shipping employees, where they would capture far less of that 10%.

If they did force Amazon to collect the tax, they might also cause some people to buy at retail stores instead of online, but shipping to homes is probably more efficient in terms of labour than shipping to stores and having salespeople employed to sell them - so more tax capture there. People might instead buy from online stores in Illinois, now they no longer have a tax advantage - that would also mean more tax capture because more of the supply chain is in Illinois.

All in all, of all the possible outcomes, it seems very unlikely that tax revenue will be decreased because of this. Amazon is trying to bully the state of Illinois because it is one of many states; if other states follow suit, Amazon will almost certainly have to back down or give up on having affiliates altogether.

Encosia2• 15 years ago

The affiliate program must increase the number of sales that Amazon makes or it wouldn't still exist. Of those additional sales generated by IL affiliates, some portion of them would have been shipped to IL - probably a disproportionate amount due to most IL-local sites being owned/maintained by IL residents.

The local ecosystem that Amazon indirectly supports is difficult to quantify, but I think you're dismissing it too quickly. Everything from the affiliates' state income tax to the tax on the fuel used to deliver the boxes needs to be considered.

We don't tax grocery stores for putting the milk man out of business, computers for eliminating type writer repairmen, nor email for the imminent demise of the USPS. Why Amazon?

orblivion2• 15 years ago

I don't suppose having your LLC based out of state is going to save you here is it?

acangiano2• 15 years ago

Actually that should do the trick. Your company earns the commissions, and it's not based in Illinois. So you should be gold.

orblivion2• 15 years ago

It just worries me that the word "residents" was used. Maybe they assumed that most people reading the notice wouldn't be businesses.

I also reckon that your primary physical business location/address matters. Seems to matter for a lot of things, but I'm just learning about this stuff now.

bambax4• 15 years ago

Amazon in France pays sales tax, just like everybody. Sales tax in France is 20% (19,6% to be precise). Is that a problem for Amazon in France? It doesn't seem so.

I can't find a justification why online retailers should be exempt from sales tax; the reason invoked by Amazon US is that sales tax are a local tax, at the state level, and they happen to be located in a different state (they're always in a different state).

This reasoning is preposterous; the sales happens where the customer is, and that's where the tax is due. That's what will happen eventually; they are just buying time -- and not very elegantly.

erikpukinskis• 15 years ago

They're not always in a different state. If you live in California, you pay sales tax on online purchases pretty much always.

storborg3• 15 years ago

That's because California has tax-hungry laws concerning what defines a "nexus" (a business's presence in the state). It's difficult for many companies to avoid creating a California presence, so they're stuck collecting California sales tax as if they were based there.

allwein• 15 years ago

Likewise, back when CDNow.com was it's own company it was located right outside of Philadelphia. Living in Pittsburgh, having to pay sales tax when buying from CDNow was always a consideration when deciding to buy music from them or someone else.

thematt• 15 years ago

It's not that the purchase is exempt from tax, it's that Amazon isn't responsible for collecting it. The onus falls on the consumer to pay the sales tax directly to the state. Nobody does though, which is why they want Amazon to collect it.

If you're looking for justification, refer to the Supreme Court ruling that established it, which said that requiring these companies to comply with the varied sales tax rules and regulations of 45 states and some 7,500 different local taxing jurisdictions would burden interstate commerce.

bambax4• 15 years ago

Why don't they fight in court then?

Cutting their affiliates lose looks really low; they should stand for them instead.

btilly4• 15 years ago

I can't find a justification why online retailers should be exempt from sales tax;

This justification is to be found in the US Constitution where authority over interstate commerce is granted to Congress. This leaves states with no legal authority over interstate commerce.

This reasoning is preposterous; the sales happens where the customer is, and that's where the tax is due. That's what will happen eventually; they are just buying time -- and not very elegantly.

In theory, yes. In practice, no.

Experience says that people don't voluntarily report or pay taxes on those sales to the state government. Furthermore state governments have proven unable to track down those sales without the cooperation of merchants. So if Amazon doesn't cooperate, those taxes don't get collected.

wheels• 15 years ago

Amazon's competitors in France also pay tax. That's the difference.

The issue here is that the law is such that out of state vendors don't have to pay tax; Illinois is just trying to jigger a way to make Amazon have to pay anyway, because Amazon sells lots of stuff and they'd like the tax revenue. But that effectively gives their competitors a 10% pricing advantage, not to mention making accounting much more expensive.

shareme• 15 years ago

No, read the damn paper..Illinois is bankrupt they are asking for sales taxes to get them out of debt..

tsycho• 15 years ago

Well, to be fair to the physical retailers, all online retailers should pay sales tax since you are giving them a 10% pricing advantage otherwise.

Amazon (and others) are exploiting a tax loophole, and the state governments are trying to stop that. They should, however, make such rules for all retailers, and not target Amazon specifically (I am not sure if they are doing so, but the parent comment makes it seem like that).

repiret2• 15 years ago

I disagree. Consider the following sequence of examples:

1. I have a store in Oregon, a US state with no sales tax. You live in France, and while on vacation here, you buy a trinket, and carry it home in your luggage. Clearly, I don't have to pay French sales tax. You might owe some import duty when you bring it home.

2. Suppose instead that the trinket is big and heavy, so rather than putting it in your luggage, you have me mail it to you. Its still pretty clear I shouldn't have to pay French sales tax.

3. When you get home, you like the trinket so much, you want a second one. You know that your cousin will be visiting the area, so you give her money, she gives it to me, and I mail you the second trinket. You probably still agree I don't have to pay French sales tax.

4. Suppose your cousin, and nobody you knew, was going to be near my store. So instead you hire an agent to deliver me the money instead. Now perhaps its starting to get a bit murky, but I don't see that the agent is morally different from your cousin, and the use of an agent should not avail me to French sales tax liability.

If that agent is named "the postoffice", then what we have is a typical mail-order business. And I think you can make a good case that online business should be treated a lot like mail-order business.

* * *

Now if we repeat those examples with my store in California and you in New York, there are two differences. First, California has sales tax, so in the first example, California sales tax would unquestionably be owed. Second, at some point along the way to the last example, we became engaged in inter-state commerce. The United States constitution forbids states from regulating inter-state commerce. This has been construed to mean that mail-order business is interstate commerce, and as such, neither the state of the seller nor the state of the buyer have a right to impose sales tax. Online business has, correctly I believe, been treated the same as mail-order. Most states have a "use tax", which requires a tax be paid on new goods brought into the state for use in the state. The problem is out of state sellers can't legally be required to collect it, or even report enough details for the state to reasonably enforce it.

Legal issues aside, allowing inter-state commerce to be used as a sales tax evasion scheme doesn't seem like good public policy. But the obvious fix - collecting sales tax for the locale of the buyer - is not logistically simple: states, counties and cities can all impose their own sales tax, so across the country there are thousands of different government authorities to which sales tax must be remitted and thousands of different tax rates which are constantly changing. Requiring every online seller to keep track of that - and exposing them to audit liability from all these different authorities, would not be beneficial to public policy either.

bambax4• 15 years ago

The vendor never has to "pay" any sales tax: they collect it (my initial wording was wrong).

It's the buyer who has to pay sales tax. Being French, if I buy anything anywhere in the world, I owe the French government 20% of the amount of that purchase; if I'm able to hide my purchase in my suitcase, then I'm evading taxes, but I'm certainly never exempt.

The crux of the matter is whether Amazon is an "out of state seller": is it? When an Illinois resident buys something from Amazon from the comfort of their own home in Illinois, they are not importing something from another state.

Amazon contends they are, though; they may have a case but I very much believe they will lose in the end.

shalmanese• 15 years ago

5. Suppose you get so many orders from France that you figure it makes more sense logistically to bulk ship items to a central location in France and then drop ship from there with the French office merely acting as a forwarding location. Surely this is roughly equivalent to the previous scenario.

6. Since demand from France is fairly predictable, you figure you can actually ship based on anticipated sales, shortening fulfillment time. Surely this is roughly equivalent to the previous scenario.

7. Since you realize the drop ship location is fairly close to many of your customers, you can offer a saving to the customer by allowing them to physically travel to the warehouse and collect their goods. Surely this is roughly equivalent to the previous scenario.

8. Since customers are frequently coming to pick up their orders, you realize you can neatly and logically order the items in your warehouse to facilitate easy retrieval of pickup orders. Surely this is roughly equivalent to the previous scenario.

9. Since people are coming into the warehouse, it makes no sense to force them to do the purchasing online when they could just wander through the warehouse, decide what they want and purchase right there and then. Surely this is roughly equivalent to the previous scenario.

10. Suppose you now figure out that it makes sense to advertise this warehouse space since people in the surrounding area could come in, wander through the aisles and make impulse purchases. Also, investing money in improving the physical appearance of the warehouse will also draw people in. Surely this is roughly equivalent to the previous scenario.

11. You figure out that it makes sense to place multiple warehouses in different places around the country since this will attract more people from that local area. Surely this is roughly equivalent to the previous scenario.

12. Given how logistically complicated this has become, you hire an entire French team who operate largely independently of the US parent office and manage the roll out of these fulfillment centers (they call them le store). Surely, but surely, this is roughly equivalent to the previous scenario!

yummyfajitas5• 15 years ago

The issue is that Illinois has no right to issue laws governing the actions of people not located in Illinois.

Illinois is free to demand that people who are located in Illinois pay sales taxes on their out of state purchases. If it has probable cause for believing one of it's citizens is evading taxes, it can even file a subpoena with Amazon for sales records.

chopsueyar5• 15 years ago

Does Amazon France pay for their employees' health insurance? What percentage of their paycheck has social security and medicare taken out?

baddox• 15 years ago

By that logic, it's certainly fair for your family to pay sales tax if you live in, say, Illinois. But isn't it also reasonable to leave one state for another because of sales tax?

ars• 15 years ago

It's time for the Congress to get involved here.

Pass a law that each state can specify a single tax rate for any shipments into that state. Then all retailers everywhere would have to collect that tax and pass it on to the state.

If the state wants to distribute the money locally let them handle it themself - the retailer sends a summary with the city names, and total amount, and the state can figure out how to distribute it.

I'm a fan of taxing via sales tax instead of income tax.

true_religion2• 15 years ago

> Pass a law that each state can specify a single tax rate for any shipments into that state. Then all retailers everywhere would have to collect that tax and pass it on to the state.

At that point states would be able to set higher rates for shipping than for in-state sales tax. That would create a protectionist economy for their in-state businesses which is precisely what the founders feared would occur if you allowed states to control inter-state commerce.

States have a bias to their own businesses because their business owners/employees are also voters.

billpg• 15 years ago

I imagine the federal sales tax would be set to the same level as the state sales tax. States couldn't change one without changing the other.

(I've not really thought this through. The above is just a random thought. Be nice.)

davidk0101• 15 years ago

I don't see the point in punishing the affiliates or how the tax law makes any difference in how the affiliates get paid for generating sales.

minouye• 15 years ago

If you are interested in doing something about this, I'd recommend you check out the Performance Marketing Association (http://www.performancemarketingassociation.com/). One of their main focuses is addressing affiliate nexus legislation and they have representation from most major affiliate networks and several large merchants.

sliverstorm• 15 years ago

I wonder if the states realize that one of the possible outcomes involves Amazon retreating to only a few states-

which then elect to allow the practice to keep the entirety of Amazon's revenue flowing through their borders

It's not necessarily inevitable that the states will be able to muscle Amazon to their wishes.

acangiano2• 15 years ago

As much as I'd hate to lose thousands of dollars every month, if Amazon were to terminate their program in Ontario for the same reasons, I'd fully understand them. I imagine that the extra income generated by affiliates would pretty much be lost due to the sales tax, and Amazon is a business, not a charity organization.

chopsueyar5• 15 years ago

It is sort of alarming to see users here demanding more taxation at the state and federal level.

Amazon has been around for awhile. Why is this a problem now?

ylem• 15 years ago

I think part of the nightmare for an internet company is dealing with the myriad of tax laws--not at the state level, but at the county/city level. Sometimes some cities for example declare tax holidays on certain goods. How do you deal with that regularly? Perhaps a company of Amazon's size could, but suppose you are just a small company? If you are local, then you're aware of such things, if you're not...

Amazon Terminates Illinois Affiliates

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