
Amazon will end affiliate program in California if new law passes - richcollins
http://www.boingboing.net/2011/06/29/amazon-kills-associa.html
======
btilly
Some important background on this.

At issue here is sales tax. By state law, the tax is owed by the citizens to
the state no matter where they make the purchase. To make enforcement easier,
the tax is supposed to be collected by businesses. In theory the tax is owed
regardless, but as a practical matter when businesses do not collect the tax,
customers don't volunteer the information and the state loses revenue.

This annoys states to no end. _However_ courts have long ruled that a company
that is not in a state cannot be forced to be regulated by that state, even if
it does businesses with residents from that state. They can't do that because
that is interstate commerce, which the Constitution says is regulated by
Congress, not the states. But if the company has a presence in that state,
then it can be forced to obey state regulations, even if the actual commercial
act crosses state boundaries.

This is all old hat, and was settled back in the 1800s with catalog companies.

The new twist here, that several states (now including California) have
pursued, is declaring that the existence of an affiliate program with state
residents is a business presence in that state. Because it is a presence, they
can make Amazon collect taxes.

Amazon's position is that affiliates are not Amazon employees, and are not a
presence of Amazon in that state. And therefore those laws are
unconstitutional. However Amazon has chosen to not contest these laws in
court. Instead Amazon has chosen to cut off all affiliates in any state that
tries this tactic. It thereby guarantees that it no longer has a presence in
that state, and it doesn't go about trying to collect taxes from people in
that state.

The net result is that Amazon loses some business, the state continues to not
get taxes, and some residents lose a source of income.

~~~
tomp
So... if I understand correctly, if I am a resident of California and I buy
books from Amazon, I pay no sales tax (isn't that the same as VAT)? Does this
mean that Amazon books in Washington are more expensive (because I Amazon must
collect the taxes, because the state can force it to, because it has a
physical presence there)?

~~~
tedunangst
If you live in CA and buy books from Amazon, Amazon does not collect sales
tax. You are still required by law to pay it. The onus is now on you to
calculate the amount and include it when you file your income taxes.

~~~
rbritton
In most tax jurisdictions they call this a "Use Tax". In theory here in
Washington you're supposed to file that with the state
annually/quarterly/monthly/whatever interval they set for you, but in practice
no individual actually does. Businesses that remit sales tax to the state do
have a field on the form to include their own use tax as well.

------
kposehn
__Update __

Governor Brown just signed the aforementioned affiliate nexus taxes into law
minutes ago. They took effect instantly.

~~~
silencio
Couldn't find any news stories that weren't just reporting on the "what ifs",
but the press release from the governor's office is available here:
<http://gov.ca.gov/news.php?id=17101>

------
abalashov
So, what exactly is deemed "presence?" Apparently an Amazon distribution
center in Texas was deemed "presence" a while back. On the other hand, surely
Amazon operates a fairly extensive network of data centers, warehouses, and
other fixed-location logistical inputs in California? Is that "presence?"
Where is the distinction lie?

~~~
9999
Yes, I'm really not clear on that either. Can someone with a legal background
provide some clarification?

------
krisneuharth
I received notice today from 4 of my affiliate programs that they are
terminating their programs in California. I expect the remaining few to notify
me soon enough. I may end up registering again with these program using an
Oregon address if I feel like my site is something I still want to work on if
this goes down the way it is looking.

~~~
allwein
Perhaps you'd like to consider a Wyoming shell company?

<http://news.ycombinator.com/item?id=2708336>

~~~
nerfhammer
With your _legal address_ in Wyoming wouldn't you need a personal address to
which Amazon would need to send correspondence?

Or if you open a bank account for this legal enttity, wouldn't the bank want
an address they can actually correspond to?

~~~
calloc
That is why you have that legal address. That is where all correspondence for
the business is sent. This is called a statutory agent.

~~~
nerfhammer
all correspondence? Not just legal correspondence?

------
ellisd
This sounds like a terrible idea from a technology standpoint as each county
and city seemingly has different sales tax rates. To comply with taxation,
every out of state company will now need to pull the active sales tax rates
for the shipping destination and then apply this to the order.

What happens if the rate isn't kept up to date?

Are states like California actually ready to supply this data in a form that
is easily consumable as a web service rather than a PDF file, to avoid
hindering interstate commerce?

Personally I don't think Amazon is completely the victim in this situation.
Their attorneys spend quite a bit of time and money figuring out how to avoid
paying tax. I interviewed once for an Amazon.com company who's "primary"
development offices were in California, yet their checks came from their
"legal" headquarters in Nevada. Shady at best... for example:
<http://www.lab126.com>

~~~
chrisbolt
There are companies out there like <http://www.avalara.com/> that exist to
help deal with the complexities of state, county and city sales tax rates.

------
richcollins
Affected companies will end their affiliate programs so they don't have to pay
the tax. This means that the state won't collect the tax revenue anyway. It's
obvious that this is just a ploy by competitors (Walmart) of companies with
successful affiliate programs (Amazon).

------
novaurora
There's an open letter on Votizen opposing the Amazon tax and requesting a
veto:

<https://www.votizen.com/letters/27/>

You can sign it yourself as a California voter, or simply tweet out a link and
ask for retweets to get more signatures.

------
mcollins027
Frickin fantastic. There goes my business model...

~~~
T-hawk
Would moving out of California be an option? Or at least doing the minimum to
establish residency somewhere with fairly lax requirements?

~~~
archon810
What would prevent one from changing to some fake address if you get paid in
bank transfers anyway? Where could this go wrong?

------
richcollins
Also see: <http://news.ycombinator.com/item?id=2711202> (Veto the law that
will end affiliate programs in California)

------
leot
They're clearly doing this because they know the affiliate marketers will
complain a _lot_ , and not because there's much of a direct relationship
financially.

~~~
btilly
Not at all. They are doing this because they don't want to get into an
unnecessary legal fight which could go either way.

~~~
gte910h
Or do the obscenely complex logic for each of the tens of thousands of
jurisdictions each year required to calculate sales tax.

~~~
jbooth
50 jurisdictions, actually. Less considering that some states don't have sales
tax and still more aren't going this route.

~~~
throw_away
actually there are far more than 50, as many counties and municipalities have
their own sales tax rates on top of their state's rate. not only that, but it
is far more complex than just one fixnum per jurisdiction as each is able to
establish rules on what is taxed and what is not. the prime example is food,
where the local laws on what counts as non-taxed food always seem a bit
byzantine.

~~~
jbooth
Thanks, you're completely right.

I'd still note that every single national retailer manages to do it ok.

~~~
jonknee
They have local managers for every region and sub-region. Amazon doesn't have
a manager assigned to Sonoma County to make sure that everything's on the up
and up regarding Sonoma County tax laws. Amazon's actually much better
equipped to handle the problem because of their size. It would be a real
nightmare for a small site that can't afford even a single full time
accountant.

~~~
tedunangst
How many small sites that can't afford a single accountant are running
affiliate programs?

~~~
dangrossman
Hundreds of them. Anyone can set up a copy of iDevAffiliate (and many do), and
thousands of small businesses have programs run through networks like
ShareASale, Clixgalore and CJ. You can start a professionally managed 3rd
party affiliate program on a network for $75-350.

There are hundreds of thousands of products with affiliate programs on
ClickBank. Most of them are info products and software being sold by an
individual with no employees.

~~~
gte910h
Thanks dan. Links like this are why I read HN

------
rishi
Are they doing this for tax reasons?

~~~
Symmetry
As an example of how complicated this can get:

Many states and municipalities tax "cookies" differently than other food
items. For a long time Fig Newton used "A cookie is just a cookie, but a
Newton is fruit and cake" as their most prominent add copy, and while some
people have referred to Fig Newtons as cookies, the people who produce them
don't. Would you like to be the person in charge of figuring out, for every
jurisdiction in the US where its relevant, whether or not a Fig Newton is a
cookie based on relevant law and precedent? There isn't a consistent answer
that applies everywhere. And that's just one product among the many, many that
Amazon sells.

------
37prime
I am pretty sure the payment made to Associates Program is classified by
Amazon as "advertising fee". I'm not sure how it would hold up against any
accounting audits by IRS, for example. Amazon do send 1099-MISC to Associates
Program member.

------
bennesvig
Adam Carolla's Podcast gets a good source of it's income from Amazon's
affiliate program.

------
phirephly
Alright guys, so we all lost our Affiliate programs. What are the legal
implications for just putting down an out-of-state friend's address in our
Amazon account information?

------
bxc
its interesting (to me) that they avoid collecting sales taxes in various US
states, but that (at least for AWS) they are compelled to collect VAT for
_all_ EU states because they have a presence in at least one of those EU
states...

------
dailyrorschach
Can I add/posit that, perhaps the reason Amazon is also taking this pretty
passively other then just shutting down and waiting to see if the law changes
- is that the affiliate marketing programs are perhaps just not that valuable
to them any more with their market position?

------
sabat
Lawyer types: if one were to, say, incorporate in Delaware, and then rejoin
the Amazon program from a Delaware address (presuming that's possible) --
would that be legal?

~~~
btilly
I am not a lawyer, and this is not legal advice.

As long as Amazon didn't know you were a California resident, you'd probably
get away with it. However you'd be opening Amazon up to the possibility of a
lawsuit from California. If they figure that out, they will _not_ be happy
with you.

~~~
pavel_lishin
Wouldn't creating a Delaware corp for all of this be massive overkill?
Anything purchased through the corporation for an employee's (your) use would
then be taxed, too, right? This sounds like a pretty significant hassle, and
really only a good idea for someone who makes _a lot of money_ from their
Affiliate stuff.

~~~
philfreo
There are plenty of people who make _lots of money_ from Amazon

------
Hisoka
I suspect Amazon secretly wish they could just get rid of their entire
affiliate program. If it was so profitable, they wouldn't be getting rid of
affiliates left and right. If you think about it, most people who buy thru an
Amazon affiliate link probably would've bought it from Amazon anyway (due to
its huge brand recognition, dominance in Google, etc).

So, when an affiliate refers a sale, sometimes they're losing money, not
making money.

~~~
DanLivesHere
This is incredibly unlikely.

Bringing people to a store, virtual or otherwise, is incredibly valuable for
that store. Amazon has literally 1000s of people doing that, constantly.
Instead of finding a good/best price on an iPod, I send people to Amazon, etc.
Don't underestimate that value.

~~~
Hisoka
don't overestimate it either. I know people who make tons of spam thin pages
ranking for searches like "Nikon D40 camera Amazon coupon". All they have is a
link to the Amazon page, and they make lots of money thru it. That's a sale
Amazon would have irregardless

