Hacker News new | past | comments | ask | show | jobs | submit login
Connecticut Killed Affiliate Marketing with Amazon.com (ballestrini.net)
100 points by foxhop on June 11, 2011 | hide | past | web | favorite | 103 comments

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?

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.

Actually, it only goes as far as if you're making money, they should get a share of it. Pork barrels aren't just Federal.


I find it very difficult to underscore this point without going on a rant -- perhaps because I find it so bad.

Let's say I'm living in IL and making 10K a month with Amazon sales. This is all because of a lot of hard work putting bits on a server somewhere in Austin or something. People come from all over the world to consume content and buy things.

Aside from the legal discussion, in practical terms what part of this equation involves the state of Illinois? I don't mean to be facile, but looks to me like the only reason they're coming for the money is because they can. In any other scenario we'd call this a shakedown. But because politicians do it we call it policy. Weird.

I'm not by any means arguing for no government, just pointing out that most times when I pay a tax there's something concrete and direct in return. If I pay property taxes, it goes to the local school. If I pay a road toll, it goes for road maintenance. If I buy a fishing license, I pay for game inspectors. This payment and feedback loop allows me to be able to judge if a tax is working or not -- and form some kind of opinion about what rates might be best. Here I'm just paying the state because they have the power to hurt me if I don't pay them. Seems to me once you reach a certain point in decoupling taxes from benefits, there's no rational basis to have any kind of compromise any more. Instead you get these hugely polarized debates. This is not a good system for people to live in.

>Let's say I'm living in IL

>Aside from the legal discussion, in practical terms what part of this equation involves the state of Illinois?

In practical terms, the argument goes that you benefit from the safety and health services that are (at least in part) provided by the state during the hours you work, marketing for Amazon. By extension, Amazon is also benefiting from these services provided (at least in part) by the state, which can be proven by identifying a single payment made from Amazon to an affiliate that is a resident of IL.

Legally, this could be grounds for one to argue that, by providing marketing services for Amazon while working in IL, nexus[1] has been created.

[1] http://www.bna.com/state-tax-nexus-p9122/

Care to comment on why this was down-voted? Did I misunderstand Daniel's question or not appropriately address it?

I would assume that some have taken this as advocating on behalf of states that impose sales tax on companies due to the residency of their affiliates. I carefully worded my comment so that this was not the case. On the other hand, if you feel I'm wrong about the position that these states have taken, please correct me...

UPDATED: My position on tax policy is not germane to Daniel's question and based on the rest of this post, would just be redundant to include. When a thread strongly reflects one side of an issue, it's much less dull to try and articulate the counter-point of view... wish more people would try this.

What part of it involved IL? Are you being deliberately obtuse? You living in IL. States charge taxes to provide services to the people who live and enter the state. You live in the state, therefore it is entirely appropriate for IL to charge you income tax. If you don't like it, vote in different representatives because the other thing that you get to do in IL is vote for IL state representatives.

If I understand his metaphor and current law correctly: this law changes nothing about income tax. Regardless of this law, Mr. Amazon-Affiliate pays income tax to the State of Illinois on his Amazon affiliate income. I believe the poignant line from the blog post is:

  ... imposes the collection of taxes from consumers on sales
  by online retailers – including but not limited to those
  referred by Connecticut-based affiliates like you – even if
  those retailers have no physical presence in the state.
I interpret this as saying "if a Connecticut resident refers customer X to company Y, and X buys a product from Y, then company Y must pay tax on that sale." The only necessary tie to Connecticut is the referrer.

Of course, they'd also tax Mr. Amazon-Affiliate's affiliate income as well. That smells like double taxation.

Also, I think your comment suggesting that "If you don't like it, vote in different representatives," is rude. Obviously, Mr. Markham is aware of his Democratic rights and duties. He very well might vote against this sort of legislation, and he doesn't deserve to hear derisive comments when voicing his disapproval.

edit: formatted the quote for easier reading

I actually don't understand that part of it. How do sales tax on CT consumers -- who may or may not be driven to Amazon by a CT affiliate -- compel Amazon to terminate the affiliate programme?

CT-based affiliates may be driving traffic from outside CT, and CT-based purchases -- the thing being taxed -- might have been driven by an affiliate in Iceland.

Terminating _sales_ to Connecticut would amount to a refusal to pay the tax. Instead Amazon has chosen to raze the profits of a minority of CT constituents. They must be hoping that the ousted affiliates will march on New Haven.

(If I were a successful affiliate, though, I'd just make an out-of-state LLC and pass income through.)

I believe the problem comes from having a physical presence in the state. Most states have sales tax rules that say if you have a physical presence, you must charge sales tax. The rules were changed such that Connecticut is treating affiliates as a physical presence. If Amazon keeps the affiliates, they have to charge sales tax on everybody who purchases in Connecticut, which they really don't want to do.

While I'm sure part of the reason they don't want to charge tax is that no tax makes Amazon cheaper, I bet a bigger portion is the headache of trying to manage every single municipalities convoluted sales tax rules. I know in my city (in Utah), there are dozens of rules for types of goods that determine different rates. Imagine doing that on a nationwide scale.

I think the problem is that they want to apply a sales tax to anyone that is referred to Amazon /worldwide/ by a Connecticut referrer. That is why Amazon argues that it is unconstitutional. If it were simply taxing Connecticut consumers it would be similarly complicated, but I think there is more constitutional grounds for this. I'd have to check.

It's not like Amazon is going to pull out of the state.

The whole point is that rather than the state happily collecting their income tax on any income generated by state residents, which they have always been able to do, they are attempting to levy a tax against all Amazon commerce transactions based on the fact that they have affiliates operating in the state.

DanielBMarkham is not making a case that IL isn't entitled to tax his income from the Amazon affiliate program. It is taken for granted that they will tax the additional income, as they have been doing since before this new budget/law. What they are attempting to do is tax more than just income generated by affiliates living in the state, which is where the argument that they are not contributing to the flow of business which would warrant that.

Vampirical, I'm not sure I understand you. Illinois spends state funds to make Chicago, Peoria, Carbondale,... attractive to live in. People with money thus move to / stay in IL and spend some of their money online. Isn't that a contribution on Illinois' part?

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.

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?

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.

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.

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.

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.

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.

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.]

> 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?

Literally every case of tax evasion under a government where the tax rate is too high and the marginal utility of higher taxes is negative.

Can you give a real example of a case where this has actually happened? (by marginal utility I assume you mean marginal revenue; governments do not have utility)

No I mean marginal utility. Governments have utility. For example, they do things like give people money to maintain roads. The marginal utility of higher taxes would be the value of the extra amount of road maintainance, and all other changes to the physical universe, that happens as a result. (Edit: So compare the universes where the government rakes in $x and $x+epsilon of revenue. Which is a better universe? There are plenty of governments where $x+epsilon would produce a worse universe. It might depend on who it gets the extra epsilon from.)

Utility is only defined for individuals. It sounds like you're trying to talk about how some sum of citizens' utility functions changes as a result of a change in government spending.

Response to your edit: you haven't defined "better". And I'm still waiting for a real world case where $x+$epsilon has been dominated by $x.

Yes, that's what I'm talking about.

So wait, you're looking for a case where $x+$epsilon government revenue has greater utility than $x?

Because that's the opposite of what you were asking for before...

First you have to define what "better" means since there are O(300 million) utility functions in the U.S.A.

Second, I want a real-world example of a "negative marginal utility" of taxation -- which tax rate was raised, who it affected, how they evaded it, and why it was good for the society at large.

Homeless people paying sales taxes.

Do have any other questions?

This response does not answer either question.

I'm sure if you're dissatisfied to my answers then you'd have no problem coming up with some of your own examples.

Edit: Wait, you want me to define a utility function for people? That was your first question? That's just a stupid question. Define your own utility function. I don't care what it is. And your second question is stupid too. Sorry, I'm not a keeper-tracker of tax evasion. So let's say "any time a poor person evades taxes." Or many of those cases. If you want a specific example, too bad. If the lack of a specific counterexample of the kind you specified is actually the barrier preventing you from changing your opinion about this, then you shouldn't bother trying to have opinions about things. The fact that some people get more value in government services than they pay in taxes is proof that there are people whose tax evasion would benefit society at large. This is a simple mathematical truism.

> I'm sure if you're dissatisfied to my answers then you'd have no problem coming up with some of your own examples.

I was challenging you on this point because I don't believe you can come up with an actual example of a company's tax evasion benefiting society.

> Wait, you want me to define a utility function for people?

No, I wanted to prompt you to think about defining a single utility function for 300 million people. There is no way to do it, because you cannot compare interpersonal utilities. Your statements about governments having utility suggests that your thinking on this topic is muddled.

> If you want a specific example, too bad.

No empirical evidence, then?

> The fact that some people get more value in government services than they pay in taxes is proof that there are people whose tax evasion would benefit society at large.

It would not benefit society at large; the benefits would be private to the evader and everyone else's tax bill would go up.

> This is a simple mathematical truism.

Not only is it false, but I don't think you know what a truism is. A truism is a tautology.

> stupid ... stupid ... you shouldn't bother trying to have opinions about things

SamReidHughes, there is a saying that to know a little economics is worse than to know none at all. I think you are overconfident in your theories and should be more humble and polite in dialogue with others.

It may be displacing a local purchase... in a third, unrelated state. Only the affiliate lives in Connecticut, the purchaser may live in Colorado... or Czech Republic, for that matter. I think you have the argument about capitalism backwards. Any time someone says "that's unfair, we should change the laws to help (inefficient business X) compete more effectively with (efficient business Y)", they are directly contradicting the idea of capitalism.

Where the social good lies is sometimes hard to work out; but I'd guess in this case Connecticut residents would be better off with an efficient Amazon and the ability to become Amazon Affiliates than with the small amount of tax revenue that this legislation tries to capture.

Hmmm. "More capitalist" would be to eliminate local sales tax to allow businesses to compete.

The part I have a hard time comprehending in these situations is that many legislators have legal backgrounds being attorneys, yet seem to completely forget about the constitution.

Seems that the collateral damage to affiliates from this law is specifically because those legislators understand the commerce clause of the constitution.

The constitution explicitly prohibits states from interfering with interstate commerce, which is what Connecticut is doing (forcing regulation on a company outside their state), and is why Amazon is calling the law unconstitutional.

Except it doesn't occur outside their state if an amazon affiliate is in CT. Hence amazon withdrawing.

Exactly, they are bending they are pushing the rules just enough to get away with it and have something that's not unconstitutional (at least according to them) It's in a way ingenious what they are doing. Law making is a form of hacking in my view.

You don't have to pass an economics test to become a legislator.

Would that it were so.

responding to each point. 1) expecting to "make that money" when no other state has is idiocy. 2) the "stake in the ground" is just symbolic. Do they really think that helps at all? 3) like I said, I can see both sides of tax debate, I just find it wildly irresponsible to nuke the revenue for a bunch of your constituents because you've lost track of priorities.

RE: 1), you'll notice a lot of big market states have all jumped at the same time. That makes the jump look a lot more appealing to me if I'm a state legislator. Eventually Amazon won't want to forfeit affiliate business in every big state economy except Texas and Delaware. Or that's the gamble, at least.

nostromo had the right response to that below. There are plenty of jurisdictions for the larger affiliates to jump over to. I'd be very surprised if Amazon doesn't have a 95/5 ratio like most affiliate programs in terms of revenue produced by largest affiliates. The bigger affiliates will have no problem incorporating in one of the no tax states.

Just to illustrate your point, in Colorado the legislature did this same thing (lobbying by small business was used as justification), but the large affiliates I'm familiar with (2, specifically) moved their offices to Laramie, Wyoming (2.5hrs from Denver). Keep in mind, there are ~5M people in our entire state.

The justification for these actions is simple: every state has spent the last many years spending themselves into a great deal of debt, now they are desperately grasping for revenue and amazon has big pockets.

But... it hasn't worked at all, producing not even one penny for any of the states that have tried it. Isn't that the proverbial definition of insanity?

Most states were actually doing great as of 2000, and have been cutting relative to their cost inflation for the last decade or so.

10-15% healthcare cost inflation has been spending states into debt.

Connecticut has increased its state spending by about 50-60% over the 2000-2010 period while its economy grew by only 15% in that time.

And what % of that is healthcare costs? Check it out. I don't know conneticut that well but if you employ a lot of people, and they have healthcare, then it was a huge cost to roll them over these past 11 years.

Think of it as a signaling game: what happens when all the US states have similar laws. Will Amazon just give up on affiliates?

Remember, there are five states that do not charge sales tax, so they have no incentive to fight Amazon. There are another five states where Amazon already collects sales tax. So, that's 10 states that have no reason to pass similar laws.

And of course, affiliates that make a sizable amount of money will probably not move, but will instead simply incorporate in one of those states (one of which happens to be Delaware).

Exactly. There are plenty of choices of jurisdiction for the bigger affiliates that matter to Amazon. This is really just a "nuke the mom and pop blogger" effect.

Can you really just change the place of incorporation? I thought to avoid a determination (under these laws) that Amazon itself has a physical presence in a state via its affiliates, Amazon was refusing to accept affiliates who had any physical presence in the states in question. As I read it, if your corporation is incorporated in Delaware but has its offices in Connecticut, you're no longer eligible for the affiliate program.

Enforcement might be another matter; seems like there's a good chance that you won't get flagged if you give Amazon a Delaware mailing address, even if you're (as a company or individual) resident elsewhere. But you don't even need to incorporate to do that.

With the widespread adoption of the Google Content network for advertising I am wondering if affiliate links are needed because they can just show up in the Google ad and the advertiser gets paid for clicks. The previous affiliate can still make a page about a product but let Google figure out the links to show.

Think of what happens when all US states legalize medicinal marijuana?

It is still illegal at the federal level.

How much money can a state afford to spend on federal litigation against a team of Amazon's lawyers?

It specifically imposes the collection of taxes from consumers on sales by online retailers [..] even if those retailers have no physical presence in the state.

The wording of this implies that Amazon now has to charge sales tax to customers in CT. If so, isn't that a massive gain for the state? Or will Amazon just ignore the law?

My guess would be that the "income" from affiliates is immaterial, but the states have a different problem: They do apply the tax to other companies with a "presence" in the state, and if they didn't attempt to collect from Amazon, they would face a challenge from companies that maintain a less tenuous presence in the state such as physical stores.

INAL, but if CT didn't try to collect the tax from Amazon, I would expect Barnes and Noble to argue that bn.com sales should be tax exempt even though they have a brick and mortar store in Glastonbury, CT.

Except the whole argument comes down to physical presence.

Now, if Barnes and Noble had a caravan of mobile RV bookstores registered in a different state that came into CT to sell books, B&N would have a better argument.

We hear you have money, we'd like it.

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...

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

There are two orthogonal questions to ask:

1. How much should states tax their citizens?


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.

The phrase "Mainstreet Fairness Act" sounds like something directly out of Atlas Shrugged.

Why is cutting spending hard work? You just write a lower number on the budget, voila, less gets spent. I mean the only thing you really have to do to cut spending is for a Governor to refuse to sign the budget, spending gets cut automatically. In my opinion cutting spending is less work.


Think about the children.

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.

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.

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.

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.

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?

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.

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.



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

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.

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.

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.

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.

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?


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

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.

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.

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

Please enlighten me.

My reading is that Amazon would have had to charge sales tax on the full price of the item if the buyer and the referer were both in Connecticut. It doesn't take an ecommerce expert to figure out that sort of model is not sustainable.

Edit: on reread it appears that the law was written such that amazon would have to collect sales tax on all sales to CT buyers because the affiliates counted as a "local presence".

Not sustainable? All sorts of businesses collect sales taxes in CT -- every establishment you enter. And despite the (to you) obvious non sustainability of this, somehow the businesses are still there. Which could lead you to believe that collecting sales tax is, in fact, sustainable.

If the only reason to pay sales tax is the existence of CT affiliates, then the affiliate system is not sustainable.

Why not require all internet companies to pay local sales tax, regardless of where they are located? That seems to be the argument here.

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.)

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.

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

That's not a constitutional argument for Amazon's position.

You're obligated to pay sales tax on items purchased out of state, by annual remittance. Almost nobody does it, but if you're ever audited (by your state), they can ding you if you don't. Amazon is plenty big enough to be specifically called out by cash-strapped state governments for, effectively, encouraging people to evade the law.

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.

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.

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?

Amazon is (obviously).


> In addition, if at any time following your enrollment in the Program you become a resident of Colorado, Illinois, North Carolina, Rhode Island, or Connecticut, you will become ineligible to participate in the Program, and this Operating Agreement will automatically terminate, on the date you establish residency in that state.

This same thing happened in Colorado a few months back, and I think California has a similar bill on the horizon

North Carolina, I think, is one of them.

!Oregon - there is no sales tax there.

Ssshh; Portland is already overrun with people who are online marketing experts... don't bring more of them.


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...

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

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...

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

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

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.

Arkansas did too earlier this week.

Guidelines | FAQ | Support | API | Security | Lists | Bookmarklet | Legal | Apply to YC | Contact