eCommerce grinds an Axe With California, Cuts Loose Affiliates

The conversation about permanent sales tax on ecommerce transactions has been underway for a while now—a topic I covered in a post back in April.

So people probably weren’t all that surprised when California Gov. Jerry Brown signed legislation on the matter a few weeks ago. The new law requires any ecommerce retailer that does business in the Golden State, or has direct business partnerships, facilities, or other operations within state boundaries, to start collecting 7.25% sales tax on all online transactions conducted within state borders.

Just to refresh you with the history here, current federal law maintains that states cannot collect sales tax from retailers if the business does not have a physical presence in that state. It’s been a contentious issue for some time now, and many lawmakers on state and federal levels are working to find ways that will allow them to levy permanent taxes on all online transactions, regardless of where they set up shop. Lawmakers call it leveling the playing field, which I get, but I also assume taxpayers view this as a way for government to try and relieve its massive debt burdens.

What’s intriguing about this story though isn’t that states are now implementing their own tax laws to try and dig out from record deficits, it’s that Amazon scoffed at the new law by promptly firing roughly 10,000 California based affiliates. If there are no California based business connections, there’s no requirement to pay the state its sales tax.

Despite my empathy for all those affiliates who just got dogged (including the most recent batch in Connecticut and Nebraska), here’s what I’ve really been thinking about. If (ex)affiliates didn’t run out and pull down all their Amazon affiliate banners, deal alerts and links, there’s a good chance they are probably still sending traffic, and thus sales, to the business that just canned them. That would mean Amazon is still getting the traffic and the sale, but not paying a commission to the now fired affiliate. If you’re an ex affiliate, get those links down STAT!

It’s important to note that while the amount of traffic Amazon will miss out on due to the sacking of 10,000 business partners will be only marginal, the announcement undoubtedly had some impact on a lot of small business owners who may see their bottom line suffer. Was it fair to the affiliates? Probably not. Are people upset? Most definitely. But in terms of pure numbers it’s probably better to upset 10,000 affiliates than to jump on the tax bandwagon, potentially upsetting the largest online shopping state in the country.  As I caught the end of a news story on the radio last week about this very issue I heard one west coast consumer astutely confess, “Californians hate to pay taxes.” Amen to that.

At some point this will turn. It has to, right? As the old saying goes, there are only two things you can be certain of in life, death and taxes, and since no one sees Amazon dying anytime soon, it’s likely to be the other. When it does, where will that leave the biggest ecommerce retailer? Out in the front still I would imagine, but perhaps with a few less business partners, maybe fewer customers and tens of thousands of disgruntled affiliates who just might hold a grudge forever.

DATE: Jul 16, 2011
AUTHOR: HotWax Systems
Enterprise eCommerce, eCommerce