
Connecticut Killed Affiliate Marketing with Amazon.com - foxhop
http://russell.ballestrini.net/connecticut-killed-affliate-marketing-with-amazon-com/
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jonkelly
I'm still kind of mystified as to how these laws keep getting passed. I think
there is clearly room for debate about whether or not Amazon customers should
pay sales tax in their home jurisdictions. But, there is no reasonable debate
about these laws. They have perfectly predictable results: law is passed,
Amazon nukes affiliates, state loses income tax from affiliates, gains nothing
as a result. I find it incredible that state lawmakers either think that it
will be different in their state or that it's worth destroying the incomes of
their taxpayers to just make a symbolic gesture. Does anyone have a reasonable
justification for the lawmakers' actions or is it really just a mix of idiocy,
vindictiveness, and appeasement of local donors?

~~~
DanielBMarkham
I'll play devil's advocate.

First, governments consistently think of the economy as a static model. So you
add up how many online sales you have, add in a percentage tax, and expect to
make that money.

Second, Amazon pulling out or not is simply a short-term obstacle. The long
term strategy is to put a stake in the ground, then continue to lobby and work
at the national level. This sets precedent, even if it doesn't work.

Third, there's a lot of ignorance. You don't have to pass an economics test to
become a legislator. I think sometimes in any group that deals with another
group there's an "us versus them" mentality that takes over. In some folks'
mind, if you're making money, they should get a share of it to spread around.
Trying to adapt and configure your business model to optimize -- or simply
just to survive -- is a sign of selfish, unethical behavior. Both sides of tax
debates engage in a lot of emotional over the top rhetoric. It's easy to lose
track of priorities and principles.

~~~
jbooth
Thanks, that's the argument exactly, specifically the second part.

Regarding the static model, it's not so much that it's a static model as that
for the overwhelming majority of online purchases, it's displacing a local
purchase. It's actually a more capitalist economy from a certain point of view
to make online and local purchasing compete on the same ground, especially
when the market distortion (which yes stems from sales taxes' existence in the
first place, coupled with the commerce clause) discriminates against your
voters.

~~~
yummyfajitas
Online and local purchasing do compete on the same ground. A local store uses
CT state services and pays taxes to support them. An online store does not use
CT state services and does not pay taxes to support them.

Similarly, many companies use Microsoft software and pay license fees. My
company does not.

Would it be "more capitalist" if we were forced to pay a Microsoft tax, to
eliminate the "market distortion" of using lower cost software?

~~~
crasshopper
yummyfajitas, I think by "more capitalist" jbooth means "more competitive".
You are obviously right that forcing companies to use higher-cost inputs is
inefficient, but taxes are not an input -- they're a necessary burden meant to
be shared.

To take an extreme example, using a tax shelter could lower the cost of a
company's services while decreasing the efficiency of the economy.

~~~
yummyfajitas
Of course taxes pay for inputs - the inputs are public goods. Taxes are
compulsory only to prevent freeloading - you might enjoy the benefits of the
CT state police without paying for them.

Amazon doesn't enjoy the benefit of the CT state police. Hence, it is not
efficient to force them to pay for it.

A tax shelter is only inefficient if it allows a company to consume services
while forcing others to pay for them. If a company does not consume those
services, it is inefficient to force the company to pay for them.

~~~
crasshopper
yummyfajitas, can you give a real-world example of a tax haven which is Pareto
equivalent or superior to the company paying its taxes?

Also, who says Amazon pays the tax? Insert elasticity argument.

~~~
yummyfajitas
In the real world nothing is Pareto equivalent or superior to anything else,
except maybe for gifts given to hermits. Pareto efficiency is a purely
theoretical construct.

~~~
crasshopper
You're dodging the essence of the question. Give us one real world example of
a case where tax evasion has been A Good Thing.

yummyfajitas, it frankly sounds like you're econtrolling. I looked at your
profile and you seem like a smart, educated person, so I'll respond in good
faith so you can see how weak your arguments sound.

> _Taxes are compulsory only to prevent freeloading_

Says who? This sounds like a stylised model from Econ 101.

> _A tax shelter is only inefficient if it allows a company to consume
> services while forcing others to pay for them._

Prove it.

> _Amazon doesn't enjoy the benefit of the CT state police._

I don't use the Merritt Parkway but that doesn't mean I don't owe tax on it.

> _Pareto efficiency is a purely theoretical construct._

This from someone who just boiled the entire political economy of Connecticut
down to a prisoner's dilemma?

> _If a company does not consume those services, it is inefficient to force
> the company to pay for them._

What is your reasoning?

Perhaps you are sharing these thoughts before giving them a sound-check? I
don't mean to be rude but what you're saying doesn't make sense coming from
someone of your educational background.

~~~
yummyfajitas
First of all, you are conflating tax _avoidance_ (taking actions to avoid tax
liability) with tax _evasion_ (lying to the tax authorities about your
liabilities).

In the real world, one efficient "tax shelter" is Amazon locating itself
outside of CT. If Amazon were to pay taxes to CT, then CT would produce the
public services necessary to support Amazon. Since Amazon is not located in
CT, this would be wasteful. Thus, Amazon locating themselves outside of CT and
avoiding CT taxes is A Good Thing.

[edit: you appear to have edited your post extensively after I responded to
it. It's generally polite to indicate when you do this.]

~~~
crasshopper
> _you are conflating tax avoidance with tax evasion_

Fair enough. I meant to use tax evasion as an extreme example to prove the
inner case, but I can see how it would look like conflation.

> _one efficient "tax shelter" is Amazon locating itself outside of CT_

Petitio principii.

> _Since Amazon is not located in CT, this would be wasteful._

Does not follow. Where is the dead weight loss?

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hvs
Illinois did something similar with what it called the "Mainstreet Fairness
Act" in March [1]. Illinois, as you may know, was rated as the worst state in
the country for debt last year [2]. These states would rather chase after more
revenues (and chase companies out of their states in the process) rather than
have to do the hard work of actually _cutting spending_.

[1] [http://articles.chicagotribune.com/2011-03-10/business/ct-
bi...](http://articles.chicagotribune.com/2011-03-10/business/ct-
biz-0311-amazon-tax-bill-20110310_1_amazon-and-overstock-main-street-fairness-
act-sales-tax)

[2] [http://www.forbes.com/lists/2010/44/debt-10_Global-Debt-
Cris...](http://www.forbes.com/lists/2010/44/debt-10_Global-Debt-
Crisis_Rank_2.html)

~~~
raganwald
There are two orthogonal questions to ask:

1\. How much should states tax their citizens?

and:

2\. Given a certain amount of tax to collect, what is/are the best
mechanism(s)?

You seem to be talking to point number one. Eliminating sales tax or
collecting it from fewer transactions would accomplish that, but so would
applying the law exactly as CT applies it but lowering the percentage
collected on each transaction. For that reason, I find it confusing to look at
a situation like this and slide into arguing about cutting spending. If they
should tax people less, fine, but that's orthogonal to the question of how
they tax people and the consequences of the tax mechanisms they choose to
employ.

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karlkrantz
It wasn't just Amazon, but also sites owned by Amazon, including Audible.
Amazon and Audible were my two sources of revenue for my site
thestartupdaily.com

Yesterday both accounts were closed with no advanced notice and my business
model is effectively broken. While I support Amazon for taking a stand, I'm
angry at Amazon for not giving some sort of warning to affiliates. It also
seems like they wasted a good opportunity to get people who are most
passionate about the issue to make some noise for them. The could have sent
emails to affiliates as the issue was unfolding, and instead of the short and
rather unfriendly letter to affiliates saying "your contract has been
terminated". They should have used that notice to give people more information
and phone numbers and other contact details about who is behind this.

Seems to me like big chain stores buying protectionist legislation and selling
it to voters as "protecting small business", while in reality they are
protecting yesterday's dinosaurs and screwing forward thinking Internet based
businesses.

~~~
dangrossman
You've had years of notice. Amazon did exactly the same thing with Illinois,
Colorado, Hawaii, North Carolina... Amazon has publicly said it would do the
same thing in Connecticut for months.

~~~
karlkrantz
Of course I knew it was a possibility, but my point is that "saying publicly"
in press releases or court rooms is a lot different from having a conversation
with your customers or partners.

Telling people that the affiliate program will be closed to them in 30 days
would have been a lot nicer than telling people that their income stops
effective immediately.

~~~
dangrossman
Then they'd have to collect sales tax from Connecticut customers for 30 days.
They'd piss off a lot more people than their affiliates, including their
customers for suddenly collecting taxes they didn't used to collect, to their
shareholders for creating mass customer confusion just to be nice to
affiliates.

~~~
18pfsmt
Couldn't they simply tell their affiliates they were considering terminating
the program as early as possible? I have to believe they were aware of the
situation, and monitoring patiently as it unfolded. For example, I knew it was
imminent in Colorado. yet I've never collected a penny in affiliate revenue.
It was debated quite a bit before it passed.

Edit: I guess what I'm asking is: am I missing something, or is there some
reason why the affiliates couldn't have been alerted to the possibility
earlier? Or, does alerting them at all require Amazon to pay sales tax?

~~~
dangrossman
I can't disagree that sending out an e-mail would've been nice, though it'd
also not be good to stir up all the affiliates when it wasn't yet known if the
bill would be made law. That aside, anyone who made a significant portion of
their income as an affiliate should've been aware of the impending bill for
months and have been watching whether it would pass at the same time Amazon
was watching it. It's not an Amazon bill, it affects every affiliate in the
state for all companies... Overstock is another big company that severed its
affiliate relationships with everyone in the state when the bill passed.

------
rwg
Some food for thought regarding Amazon and sales tax:

Amazon has plans to build and operate a distribution warehouse near Columbia,
South Carolina. State and local leaders rolled out the red carpet for Amazon
-- a free building site, property tax cuts, employment tax credits, and the
repeal of a county law prohibiting Sunday morning sales. But Amazon also
wanted a five year exemption on collecting South Carolina sales tax. After
all, they would have a physical presence in the state, and there's absolutely
no ambiguity about whether or not they'd have to collect sales tax at that
point.

When the state legislature voted "no" on the sales tax exemption, Amazon
immediately stopped construction on the warehouse and took down all of the job
listings for that location. There was a huge uproar, with supporters of the
exemption accusing legislators of siding with "special interests." (Where
"special interests" apparently means "every other business with a physical
presence in South Carolina that doesn't get a sales tax exemption.")

Amazon won this game of chicken, however. Faced with massive voter backlash,
the state legislature flinched and voted 90-14 for a new deal that would
exempt Amazon from collecting South Carolina sales tax until January 2016. The
bill became law earlier this week.

[http://www.therepublic.com/view/story/CPT-AMAZON-
SCAROLINA_5...](http://www.therepublic.com/view/story/CPT-AMAZON-
SCAROLINA_5255672/CPT-AMAZON-SCAROLINA_5255672/)

[http://seattletimes.nwsource.com/html/businesstechnology/201...](http://seattletimes.nwsource.com/html/businesstechnology/2015262994_scamazon09.html)

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_delirium
A more accurate headline would be: Amazon.com kills affiliate marketing in
Connecticut, due to dissatisfaction with new Connecticut law.

~~~
jonknee
If a state enacts a law that will make a business lose money without changing
polices, it's not the company's fault if they change policies. Amazon's
pullout was a completely known outcome of the law well before it was put into
place.

~~~
_delirium
Sure, companies can do whatever they wish (within the law) in response to any
factors they choose to take into account. But I think it's still Amazon making
the decision here; from the headline, I had thought that Connecticut banned
affiliate programs or something. I'd similarly say that Boeing's move from
Seattle to Chicago, partly due to tax policies, was a decision made by Boeing,
not by Seattle.

~~~
jonknee
By that logic, the state can never be to blamed when making decisions that
affect businesses. This wasn't an unintended consequence--every time a similar
law has passed Amazon has acted identically on the exact day that it begins.

~~~
_delirium
I'm not saying the state can't be blamed, either, just that the headline is
misleading. My comment was not a political one, but one about headlines that
editorialize at the expense of clarity. If you want to emphasize the state's
culpability, that can still be done with somethting like, "Connecticut tax
change causes Amazon to pull affiliate program".

I do think Amazon's action was predictable, but it's still Amazon's action.
I'm also not quite sure it was _mandated_ by the decision; I suspect Amazon
could still turn a profit even by retaining its CT affiliate program, but with
the current landscape (% of states that do versus don't have such laws) it was
a better business decision to pull out. Amazon is also probably looking at it
as a strategic move to put pressure on other states, rather than considering
the CT business case in isolation.

~~~
chopsueyar
No, then Amazon would have set the precedent that it is acceptable for Amazon
to collect sales tax for every muncipality it does business with.

Why should it be any different than a mail-order catalog?

Coordinating the payout of sales tax for every state and city in the US?
Coding and compliance nightmare.

If the Connecticut legislature legalized slavery (in direct conflict with
federal law), and businesses were disgusted at the idea and refused to
continue to conduct business in Connecticut, would you still argue the same
reasoning?

PS

"Connecticut Killed Affiliate Marketing with Amazon.com" seems clear to most
of us.

~~~
_delirium
What reasoning am I arguing?

I'm making two comments in the comment you're responding to:

1\. The article headline is a bit misleading, and should've said something
like: Amazon pulls out of CT due to a tax-law change. Even, Terrible CT Tax-
Law Change Drives Amazon Out, or something. As it's written, I thought that CT
had banned affiliate programs; in a rush to editorialize, the headline author
sacrificed clarity about agency. Of course, maybe everyone reading is already
following the saga, so I was the only briefly confused person, but nonetheless
it seemed like an easy problem to avoid.

2\. Amazon is probably pulling out in part due to, as you say, a feeling that
this would set a negative precedent for their business, not solely due to the
CT case taken in isolation.

Your slavery example seems off the mark; Amazon is not taking action due to
_moral_ opposition to CT's tax policy, but because it's bad for their
business. They happily do business in states with all sorts of unethical laws
without complaining about them, as long as those laws don't impact their
profits.

~~~
chopsueyar
My 'slavery example' was actually a question I was asking you, not an example.

Not sure why you got confused with the headline or this discussion.

~~~
pvodsevhcm
You really don't understand _delirium's point, or are you just playing stupid?

~~~
chopsueyar
Please enlighten me.

------
irons
I've heard about Amazon pulling this tactic in NY and other states that forced
them to start collecting sales tax, but that is one breathtakingly petulant
letter. What exactly is the constitutional issue they're alluding to?

(I live in Washington state, where Amazon has always collected sales tax, so
personally it seems like a non-issue.)

~~~
hvs
The issue is collecting sales tax for items bought outside of their state.
Interstate commerce is a federal jurisdiction. If they collect sales tax in
Washington state, it's because they have an office there.

~~~
lotharbot
In Amazon's case, they have a lot of offices in Washington state, including
their headquarters. They have always collected WA sales tax.

------
mikiem
Retailers, on-line or otherwise, have to pay sales tax on sales within a state
where they have a physical presence. That's the way it is. The problem in this
case is that CT wants sales tax on a sale that was referred by an affiliate...
Even when the retailer (Amazon) and the customer are both not located in CT.
In states that charge sales tax, most (all?) charge "use tax" of the same
amount as sales tax, on items shipped to them from an out-of-state retailer
that did not charge sales tax. Retailer customers almost never pay it,
probably don't know it exists. Sates usually don't go after the tax for
consumers, but they do go after businesses for it (at least they do in CA)
presumably because the amount of tax is potentially much higher.

In other words, technically, you have to pay sales tax when you buy something,
and if you don't then you're supposed to pay the equivalent amount in "use
tax". In this case, CT is trying to wedge in there and get tax when neither
the buyer or the retailer are in CT.

It's not a business killer for Amazon to charge and pay the taxes for every
state. Many on-line retailers do. There is software and subscription services
to keep billing systems up to date with current tax tables. But, who pays
sales/use tax on what when a guy in CA buys something from Amazon that was
referred by a CT affiliate? What about when someone in a state where Amazon
has no physical presence buys from Amazon through a CT affiliate? My brain
hurts and I suspect someone's getting screwed.

~~~
mtumbrel
I think the point is that very few CT residents actually pay the use tax, and
the situation they're trying to catch is where the buyer is in CT.

If Amazon had a retail presence, it would be collecting that tax and
forwarding it to CT, and this law was an attempt to define affiliates as a
retail presence.

I agree that it's not a "business killer", but lower prices drive sales, and
that's why they've fought so hard to collect nothing.

Frankly I found the one-sided slant of the article a little nauseating.
Couldn't you as easily say that Amazon has been abetting tax evasion for
years? Who moved your cheese? Was it the Connecticut legislature or Amazon?
Well, yes.

Connecticut wants that 6%. Not sometimes. Always. So they passed a law. Given
a choice between collecting a 6% tax and hanging out their long-time
affiliates partners to dry, Amazon picked the latter.

Even though I live in a high-tax state with a similar use tax requirement, I
don't think Amazon's position is reasonable. Use tax compliance rates are
generally pitiful. Both state and the federal Internet Tax Freedom Act allow
for this kind of use tax. Local sales tax collection is not optional.

The goods in question do not magically teleport into the homes of Connecticut
residents. They come over state roads, often carried by state residents in big
trucks. If they weren't bought over the internet, they'd be bought at stores
where residents would be paying 6% or more.

------
Vivtek
Is anybody keeping track of which states this applies to? I know Illinois was
(one of?) the first, and now obviously CT as well. Which states remain?

~~~
zaidf
North Carolina, I think, is one of them.

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MediaTrustpete
The PMA Performance Marketing Association just filed the first law suit to
fight the Affiliate Nexus Tax. this is the first action of its kind from the
internet marketing industry fighting back..

Performance Marketing Association Sues State of Illinois over Affiliate Nexus
Law Lawsuit Aims to Protect 9,000 Illinois Small Businesses; State Will Lose
Estimated $22 Million in Income Taxes if Law Takes Effect
[http://performancemarketingassociation.com/pma-vs-state-
of-i...](http://performancemarketingassociation.com/pma-vs-state-of-illinois)

worth while checking out and helping support and spread this info...

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minouye
For anyone affected by this legislation, I'd encourage them to get involved
with the Performance Marketing Association. They seem to be the main group
(excluding merchants like Amazon) that is actively lobbying against such
legislation. In fact, they recently filed suit against the Illinois Dept. of
Revenue: [http://performancemarketingassociation.com/pma-vs-state-
of-i...](http://performancemarketingassociation.com/pma-vs-state-of-illinois)

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andrewpi
Anyone know the status of Amazon's litigation with New York State? Amazon
still charges sales tax to NY addresses.

~~~
username98
I don't get why Amazon didn't cut off all its New York affiliates yet.

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forgetcolor
IL also mandated a boycott of Amazon for any state procurement. IOW no state
employee can buy goods from Amazon using state purchasing methods (refardless
of aource of funds). Of course it's not like any sales taxes were paid by tne
state since they're exempt.

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bwb
Arkansas did too earlier this week.

