News: The Next Round of the Affiliate Nexus Tax Battle
We recently reported that the State of California has temporarily tabled its legislation that would force Amazon to collect sales tax on all sales in the state, unless it severed its relationships with more than 20,000 California-based affiliate marketers.
It appears that the affiliate marketing community’s collective sigh of relief has been interrupted by another revenue-starved state government.
In Connecticut, Gov. Dannel P. Malloy’s office is continuing to press the online retailer to collect sales tax on its purchases, claiming that Amazon’s relationship with Connecticut-based affiliates constitues a physical presence in the state. In other states, such as New York and Illinois, it’s been that definition of affiliates as a retailer’s physical presence—and not as the third-party publications that they are—that has led to this legislation.
Amazon terminated its relationships with Connecticut-based affiliates in June.
Here’s a report on the Connecticut story from the Wall Street Journal.
Connecticut officials say they’re not giving up on requiring Internet retailers like Amazon.com to collect state sales taxes.
State officials tell The Associated Press that the Department of Revenue Services has received a letter from Amazon that says the online company does not believe it is obligated to abide by the law because it does not have a physical presence in Connecticut.
Gov. Dannel P. Malloy says the state will press Amazon for the taxes on sales during the month when the new law was passed and Amazon still had affiliations with websites based in Connecticut. Amazon severed those ties in June.
Connecticut is also building a case to take Amazon to court. Amazon did not return calls for comment.
As this story continues to unfold, it’s becoming more and more clear that Internet retailers are going to lose one of their great competitive advantages over bricks and mortar retailers, the lack of a sales tax. Not paying sales tax provides online retailers with an immediate 6-8 percent price advantage over bricks and mortar shops.
But the simple fact is that state governments across the country are hungry for cash. To add to that, it’s getting harder to argue that retailers like Amazon need any kind of competitive advantage to keep their businesses running. And from the perspective of state legislators, it’s hard for them to support legislation that favors online shopping when they want to focus on the problems with jobs and commercial real estate they’re seeing in their communities.
The main challenge for affiliates in this battle is that we’re not organized, and we don’t really have the same kind of physical, visible presence as the bricks and mortar retailers these legislators seem to favor.