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Amazon Terminates Illinois Affiliates
- logic 16y agoI 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.
- Vivtek 16y agoMight be better yet to send a strongly worded letter to your statehouse rep.
- stronglyworded 16y agosaying what? that you believe Amazon should be exempt from taxes that B&M stores pay?
- glesica 16y agoWon't work, Wal-Mart probably already bought everyone in Springfield.
- Vivtek 16y agoHa. True. But not writing a letter also won't work. Sooner or later we're going to have to take the damn country back, you know.
- smokeyj 16y agoYou're writing letters and lobbies are writing checks. Who in this equation carries weight?
- kgermino 16y agoHey man no politician in Illinois has ever been bought off. I'm sure this law passed strictly because the representatives in Springfield felt it was the best thing for the state, and definitely not because Walmart made a $25,000 campaign contribution.
- iwwr 16y agoIt's sad that pittances like these ($25K) influence (direct?) decisions that then divert hundreds of millions or billions.
- Vivtek 16y agoIn all honesty, the pittance is just a token, an indication that everybody is on the same page. The real compensation is that there are lots of sub rosa benefits to the politician during their time in the statehouse or Congress or what have you, and as soon as he or she has had enough of public service, there's always going to be an extremely well-paid consultancy waiting. You have to look at the overall career path.
- eykanal 16y agoThe 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.
- thaumaturgy 16y 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.
- btilly 16y agoHere is an explanation. Residents of Illinois owe sales tax on their purchases. The state knows that people won't choose to pay this, so the state makes merchants collect the tax. If the merchants are based in the state, the courts say the state can do this. If the merchants are not based in the state, then the courts have ruled this to be interstate commerce, which is something that only the federal government has power over, and therefore the states can't do it. (The issue is hardly new. It was settled over a century ago with catalog companies.) Note that the tax is theoretically owed by the residents of the state regardless of where the merchant is. But in practice people wind up paying the tax at Walmart, and not at Amazon. Which gives Amazon an advantage.
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- raganwald 16y agoIf 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 16y agoAmazon 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.
- deleted 16y ago[deleted]
- chopsueyar 16y agoThere 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 http://news.ycombinator.com/item?id=1624250
- cypherpunks01 16y agoFor 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 16y agoCost 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 16y agoIt looks like they have a subsidiary based in NY; http://www.amazon.com/Locations-Careers/b?ie=UTF8&node=239366011 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 16y agoI 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 16y agoYou are correct sir: http://bit.ly/hFkxpK http://bit.ly/hFkxpK
- geuis 16y agoAre there many states left that Amazon does allow affiliates from?
- sorbus 16y agoPer the article, everywhere except Colorado, North Carolina, and now Illinois.
- DianeKennedyCPA 16y agoThe 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 16y agoI'm pretty sure you can add Colorado: This being the reason I am not permitted by Amazon to become an affiliate.
- michaelpinto 16y agoHow 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).
- Vivtek 16y agoThe difference is that Apple presumably has a legitimate, taxable presence in NY, whereas Amazon has none in Illinois.
- dedward 16y agoIt'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.
- storborg 16y agoThey 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).
- Encosia 16y agoEthics 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?
- A1kmm 16y agoIf 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.
- Encosia 16y agoThe 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?
- orblivion 16y agoI don't suppose having your LLC based out of state is going to save you here is it?
- acangiano 16y agoActually that should do the trick. Your company earns the commissions, and it's not based in Illinois. So you should be gold.
- orblivion 16y agoIt 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.
- bambax 16y agoAmazon 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 16y agoThey're not always in a different state. If you live in California, you pay sales tax on online purchases pretty much always.
- storborg 16y agoThat'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.
- Vivtek 16y agoDoesn't every state have similar laws? Indiana does - yet I don't normally pay sales tax online, because most of the companies aren't based in Indiana, whereas online companies really do tend to be in California.
- storborg 16y agoLots of states, but not every state. California is also of particular importance because it's so big: nobody would care as much if Delaware had laws like this. However, in California, even if you only have a physical presence in some remote part of northern CA, suddenly that affects your ability to sell to 37 million other people.
- ars 16y agoIt'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_religion 16y 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 16y agoI 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.)
- yummyfajitas 16y agoThen states will likely raise the in-state and out of state tax to high levels, and provide rebates/subsidies to in-state businesses only. Best not to go down that road.
- davidk0101 16y agoI 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 16y agoIf you are interested in doing something about this, I'd recommend you check out the Performance Marketing Association (http://www.performancemarketingassociation.com/ 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 16y agoI 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.
- acangiano 16y agoAs 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.
- chopsueyar 16y agoIt 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 16y agoI 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...