Affiliates Getting Dumped from Coast-to-Coast as States Contemplate Internet Sales Tax Laws
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With ever more states either passing or contemplating passing an Internet affiliate program sales tax, the two edges of that particular sword are being felt from coast-to-coast, as affiliates are being slashed from the lucrative affiliate programs of some of the largest Internet companies.

At the beginning of this year, a New York court upheld New York’s new affililate program sales tax, and in many ways that was the watershed event.

Is it arrogance or simple ignorance that is leading these state legislatures to pass laws that, instead of bringing in new taxes, are depriving their state economic engines of taxable spending fuel?
States such as North Carolina, California, Rhode Island, and Hawaii, have all followed suit – some already so close to passing their copycat laws that companies such as Amazon and Overstock are pre-emptively dumping their affiliates in those states.


“We are writing from the Amazon Associates Program to notify you that your Associates account has been closed as of June 26, 2009,” wrote Amazon to their North Carolina affiliates last week. “This is a direct result of the unconstitutional tax collection scheme expected to be passed any day now by the North Carolina state legislature (the General Assembly) and signed by the governor. As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 26. We were forced to take this unfortunate action in anticipation of actual enactment because of uncertainties surrounding the legislation’s effective date.”

Overstock gave the news to their California affiliates today, saying that “We regret to inform you that the North Carolina, Rhode Island, California and Hawaii state legislatures have or are about to pass unconstitutional tax nexus and collection laws in an attempt to force Internet retailers to collect and remit sales tax on all sales to residents of these states. These legislative measures purport to establish a state tax nexus on the basis of contracts with local advertising affiliates, even when none exists under U.S. Supreme Court precedent. Overstock.com, Inc. (“Overstock”) has no tax nexus in any state other than Utah. Due to the passage or eminent passage of these unconstitutional laws, Overstock regretfully must discontinue its relationships with all of its advertising affiliates in these states.”

It’s astonishing to realize that the legislators didn’t believe that companies like Amazon and Overstock would really pull out if they passed these taxes. Is it arrogance or simple ignorance that is leading these state legislatures to pass laws that, instead of bringing in new taxes, are depriving their state economic engines of taxable spending fuel?

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2 thoughts on “Affiliates Getting Dumped from Coast-to-Coast as States Contemplate Internet Sales Tax Laws
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  1. And the answer is SO simple! I really query the adequacy of state legislators to do their jobs!
    Granted, it would required agreement of 50 states to have an equitable and logical solution….
    BUT, here is my solution in brief:
    1) Yes, it is mainly California that has the big interstate internet vendors – TODAY. but what of tomorrow?
    2) The solution would be that ALL interstate sales, in every state, via the net or not, be taxed at the state sales tax rate plus 1%. All these moneys, would then be put into a separate accumulative account.
    3) Every 3 months, a computer would “clear out” the taxes for each state, similar to how banks clear out each other’s accounts.
    4) Essentially, the result is that the 50 states would share all the tax revenues in direct ratio to the total dollar amount of either their purchases or sales between them.
    5) The math is not hard, and with computers, the transactions easily measured / managed.
    6) Thus, 4 times a year, each state would get a nice big tax fund dump into their treasuries.
    7) Since there would only be one rate per each vendor (sales would be taxed at the vendor’s own state tax rate), all the vendors have to do is post a sale amount, the tax collected, and whether it is in or out of that state. Adjustments are handled equally easily.
    And the states all get a cut of the revenues, without complicating the affairs of vendors or clients.

    There are other factors, but space here precludes my explaining everything in detail. PML

  2. Do we have to choose between arrogance or ignorance? How about plain stupidity? It takes no thinking ability to be congressman or to elect one.

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