Amazon Ends Illinois Affiliate Contracts, Following Passage Of 'Amazon Tax' Law

Amazon is following through on its threat to terminate the contracts of around 9,000 affiliates in Illinois, after Governor Pat Quinn signed a law requiring purchases made through those affiliates to charge sales tax.

The new law is described by proponents -- including the governor and state legislative leaders, as well as retailers like Wal-Mart and Best Buy -- as a means to increase fairness in competition with brick-and-mortar stores that are forced to charge and remit sales taxes. It will also raise revenues for a state budget that's starved for them, advocates say. But Amazon, Overstock, and other online retailers see it as an unfair and potentially unconstitutional burden on their business.

Rebecca Madigan of Performance Marketing Association gives a rather dire prediction of the results of the law to the Wall Street Journal:

She said the Illinois affiliates generated $611 million in advertising revenue in 2009 and tax revenue of $18 million. She estimates that the state will lose 25% to 30% of that tax revenue because the affiliates will lose business, cut jobs or move out of the state.

"It has a devastating impact," Ms. Madigan said of the new Illinois law.

Offering the counterpoint, among others, was Roger Ebert, an Amazon affiliate who said in January that he used the affiliates program "to defray the cost of content on my site." But as he tweeted Friday morning, "Amazon will terminate my Associates account on 4/15, in order to evade fair and just Illinois taxes. I have 20 more days to make a fortune."

Meanwhile, the Governor's office continues to defend the decision, and offers help to those affiliates who were cut by Amazon as a result of the law. Before signing the law, a Quinn spokesperson said, the governor proposed a program to help pair up affiliates with new retailers who are willing to pay the sales tax. That program is located at standwithmainstreet.com.

"Should Amazon wish to reestablish their relationships with Illinois affiliates and collect the sales taxes owed to the State of Illinois, they will be welcome," the spokesperson said in a statement.

That doesn't seem likely, given the company's stance. The blog LittleTechGirl.com reproduced the letter Amazon sent it, terminating the affiliate agreement. From that letter:

For well over a decade, the Amazon Associates Program has worked with thousands of Illinois residents. Unfortunately, a new state tax law signed by Governor Quinn compels us to terminate this program for Illinois-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers - including but not limited to those referred by Illinois-based affiliates like you - even if those retailers have no physical presence in the state.

...

To be clear, this development will only impact our ability to continue the Associates Program in Illinois, and will not affect the ability of Illinois residents to purchase online at www.amazon.com from Amazon’s retail business.

We have enjoyed working with you and other Illinois-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to Illinois residents.

Read the rest of the letter on the LittleTechGirl blog.

Comments

[CPS Darren]

02:46 PM on 03/15/2011

Illinois already collects sales tax from internet purchases. In fact, the 2010 income tax form makes this much clearer than in previous years. Illinois wanted to force online retailers to collect sales tax for them, like B&M stores do. The way this law was written allows Amazon, Overstock and other retailers to simply terminate their Illinois-based affiliates, as they have threatened to do. By doing so, the law no longer applies to them, because they no longer have a "nexus" in Illinois, as redefined by the Illinois legislature to apply to independent affiliates in addition to a physical store, warehouse or office. So, not only will Amazon, Overstock and others still not have to collect Illinois sales taxes directly, but affiliates will either lose significant earnings or relocate out of Illinois. That means that Illinois will actually lose corporate income tax on those earnings either way, plus the potential loss of jobs for those affiliates that have employees and relocate. To Illinois retailiers and lobbyists, the law sounded great, like it would "level the playing field." These people didn't really understand the legislation or how Amazon and others would respond. If they do officially cut ties as stated in this article, Illinois loses jobs, tax revenue and still fails to collect sales tax from the online retailers like Amazon, Overstock and any others that cut their business ties with Illinois affiliate companies or individuals. It was a good concept, but it totally fails in its implementation.

[wilray]

10:49 PM on 03/14/2011

I didn't know Coupon Cabin was located in Illinois. They are going to have to relocate, or their business is finished. I have use them before. Any other coupon site located in Illinois will have to leave as well. Otherwise, they represent a nexus problem for any business wanting to use their coupon service. States like Oregon may experience a boom of these small businesses. To have Oregon as a nexus for sales tax is not an issue, since they don't have sales taxes. If I had one of these businesses I wouldn't even bother trying to resettle in a state that may have an issue in the future. Of course, I like Oregon anyway. I went to school there. BTW, something is seriously wack when Wal-Mart wants to cry like they are the little guys. Wal-Mart is evil pure and simple. Although Wal-Mart may seem like just a retailer, they are not. They are the guys that sent all the manufacturing jobs overseas. Wal-Mart is not your friend.

http://chicagobreakingbusiness.com/2011/03/gov-quinn-signs-internet-sales-tax-law.html

[wilray]

11:36 AM on 03/14/2011

People think that this whole philosophy originated after a desire to go after Amazon. No it originated right here in Washington State, Amazon's home state. I can even point to the person who originated it. This philosophy was to go after everyone but Amazon. We didn't need these maneuvers to go after Amazon. Why would we? Amazon is right here. Our state didn't need to threaten Amazon for compliance. We needed to threaten everyone else. Amazon is like the home team for Washington State.

[feed the enemy]

11:16 AM on 03/14/2011

This should have happened years ago. Let these big corporations pay taxes like anyone else.

[wgmadison]

01:41 PM on 03/14/2011

Corporations do not pay sales tax,the consumer does.

[feed the enemy]

03:40 AM on 03/15/2011

Ummm, I think that was my point.

[Sigger]

09:02 AM on 03/14/2011

Isn't it sad that Amazon has to collect sales tax just like everyone else doing business in the state. But they're smart, they found a republican legislator in Texas to rewrite the law exempting them from collecting sales tax - all in order to save 119 Texas jobs (they say they will leave the state if the law isn't changed). But wait, if they get a special exemption not to collect sales taxes in Texas, what about all those brick and mortar business - shouldn't they get one too?

[wilray]

11:18 AM on 03/14/2011

Sadly, my state started this whole mess to begin with. Even though they collect sales taxes on practically everything imaginable, in 2008 our state changed nexus from origin to destination just so they could stick it to the rest of the country. I think we also pioneered the idea of taxes for services, shipping costs, and even extended warranties. Even if you go for a haircut, they are supposed to charge you taxes. The only thing that they don't tax is food purchases from the grocery store. Our state had to change from origin to destination otherwise they couldn't bully the online retailers. See it really doesn't matter if someone ships something from Spokane to Seattle. The state really wasn't concerned in which city the taxes were collected. Why worry if the money goes into your right pocket or your left pocket. door. However that maneuver was what the state needed to hamstring the rest of the country. I can't believe people fell for this ruse.

"On July 1, 2008, Washington stopped charging an origin-based sales tax, and started charging a destination-based sales tax. This change only applies to transactions beginning and ending within state lines and does not apply to other states. Additionally, Washington started collecting taxes from online retailers that have voluntarily agreed to start collecting the sales tax in return for not being sued for back taxes."

[Krakondack]

06:28 PM on 03/24/2011

Yes, brick and mortar businesses should get the exemption too. And in the end, let's explode this myth that it's possible to get more back in services than you pay in taxes to a state that doesn't print its own money like the Feds do. The argument that the rich will pay for everyone else? Who do you think writes the tax codes? The ones who will fight to the end are the direct beneficiaries, the government employees.

[greysells2]

08:49 AM on 03/14/2011

I don't think corporations and companies really pay any taxes. All the taxes are passed along to the final customer in the price of the product or the service provided. Income taxes are buried in the price and you pay these taxes in the end. Sales taxes are collected by the company for the state and passed along to the state at the time of sale.

[wilray]

03:02 AM on 03/14/2011

On basic principle sticking it to the rich and sticking it to corporations just sort of resonates with me. The idea of an unfair tax on the rich seems like an oxymoron. However, this reasoning does have its limits. People who think Amazon is successful because they don't collect taxes do not grasp how savvy the company is. Some purchases, I make from Amazon are automatic. They are done without me having to order. Regularly, I will get emails telling me, they are about to ship. If I don't stop the shipment, it happens automatically. Because of this Amazon rewards me. Understand that I am a Washington resident and I pay sales tax on all my purchases. So no one could possibly construe that I am somehow cheating my state or my municipality out of taxes because I shop at Amazon. After Amazon applies shipping and taxes the price of this shipment is less than the original price of the shipment. The discounts that were applied are that much. If I go to the supermarket near me, an Albertson's, I can pay up to twice as much, or I can go to the K-Mart next door. I generally walk to the supermarket; this is item, and I prefer not to carry it. No one can claim I am squeezing out the little guy. Yet each month I save up to $20 for purchase of this one item.

[Cash4Gold]

07:32 AM on 03/14/2011

"After Amazon applies shipping and taxes the price of this shipment is less than the original price of the shipment." Huh?

[wilray]

10:49 AM on 03/14/2011

Yes, and the next state mentions the discount. Amazon charged $23.12 for the item. Shipping cost is $9.32. Because I have a subscription, Amazon discounts the entire shipping charge. Further Amazon, discounts the item for 15%. Then they apply my states taxes which come to $1.93, so the total cost of my purchase is $22.28 less than the original cost of the item. Just doing a single purchase rather than the subscription means I would pay the original price plus the shipping and my state charges taxes on the entire amount with shipping. Even so I would still most likely do better than buying at the supermarket.

Although many people on this forum have said that they would still shop at Amazon despite the sales tax, other people keep saying that the only reason people are shopping at Amazon is because of the sales tax. Whether I go to the supermarket or whether I go to the grocery store, I am still under the exact same rules for sales tax, yet I will never purchase this item at the supermarket where even when there are sales I will undoubtedly be paying more.

BTW, if people enjoy paying sales taxes, they should move to my state, Washington. They charge sales tax on practically everything except food bought at the grocery store.

[John Horner]

12:43 AM on 03/14/2011

Amazon needs to collect sales taxes no matter when the product is shipped. Amazon's only reason for exploiting the weird loopholes in sales tax laws is to gain a competitive advantage over both local physical stores and other large online stores. WalMart, Sears, Penneys, Toys R'US and many other large web sellers have to collect sales taxes and it is completely unfair that the world's largest online retailer gets away with avoiding sales tax collection.

[wilray]

01:04 AM on 03/14/2011

So your argument is that only large web sellers should be charged with collecting taxes for other states. I am certain that Amazon will present that as part of their constitutional defense. I am not certain that small online retailers and individuals will appreciate the case that you are making that they should collect taxes for other states. Exactly at which point should Jeff Bezos have had to start collecting taxes for other states. He started Amazon out of his garage. 16 years ago, Bezos started Amazon as a home business. If some businesses are going to be exempt from this, they need to clearly spell out what those businesses are.

[Sigger]

09:06 AM on 03/14/2011

If you have a physical presence in a state - your business is required to collect sales taxes. And that includes a shipping warehouse. Is that clear enough?

[studmoose]

10:07 PM on 03/13/2011

This is from Amazon's Help page: Sales Tax

Items sold by Amazon.com LLC, or its subsidiaries, and shipped to destinations in the states of Kansas, Kentucky, New York, North Dakota, or Washington are subject to tax.

What are Kansas, New York, North Dakota and Washington doing differently?

[LunaPark]

11:06 PM on 03/13/2011

Well, Seattle is the home of Amazon, so like any other business that has a physical location in Washington State, they have to pay taxes. Probably the same as the other states you listed. However in Ill., Amazon has no physical presense.

[Julia Bailey]

11:43 PM on 03/13/2011

Amazon has a physical presence in those states. That's where their warehouses & offices are. Internet businesses in the USA have to pay sales tax in the state they are registered in.

[DRaymond]

05:44 PM on 03/13/2011

You know, all Amazon would have to do is to change its Illinois affiliates to a pay-per-click basis instead of a percentage commission and the law would still not apply.
 
So why is Amazon instead making such a fuss about cutting them off entirely?  I think we know the answer.

[wilray]

12:21 AM on 03/14/2011

Actually, the case that Illinois is making is that the law would apply regardless. That is why I don't see why they ever brought up the subject of affiliates. Illinois is saying because you have affiliates in our state you will have to collect and remit our taxes. When Amazon discontinues having affiliates in Illinois, Illinois is still saying that you have to collect and remit our taxes. It's like Amazon is talking to a dull child. Amazon has consistently and correctly stated that their affiliates are simply places where they advertise. Other affiliate programs use the terms advertisers and publishers. The affiliate would be the publisher. I know why Amazon is cutting off the affiliates. Illinois acts like they are operating a speed trap, and they don't even care if you are travelling at the posted speed, and they are only pulling over the luxury vehicles.

Given Illinois' original reasoning, Amazon ought to be able to avoid being Illinois tax collector by using cost per impression or cost per click advertising. They should also be able to avoid it by using an intermediary such as Commission Junction. I thoroughly hope that Amazon fights this. I would prefer that it be followed through and settled, than perpetuate this murky mess where people don't know if they're getting over, or if they are being taken.

[picaman]

02:24 PM on 03/13/2011

Republican policies are just bad for small business. They consistently favor big business and believe that only the biggest/fittest should survive. So wall mart gets tax breaks to set up yet another box while the small business owner is forced out of amazon as an affiliate.

[oilfield]

09:18 PM on 03/13/2011

i doubt very seriously that it is an r vs d thing...wal mart is allowed everywhere because they generate an immense amount of sales tax.

[enoughalready13]

02:16 PM on 03/13/2011

Good for amazon! They are an excellent online retailer. We buy from them all the time and we live in IL! It's about time companies fight back for the interests of THEIR CONSUMERS unlike the banks, Wall Street, insurance companies, telecoms, utilities and cable companies who only look out for robbing their consumers with the help of laws to justify it!

[frank day]

05:21 PM on 03/13/2011

What do you think Illinois does with the sales tax?

I take it you don't use roads, schools, hospitals, libraries, etc...?

[Ddayv825]

09:21 PM on 03/18/2011

The roads are full of potholes, the schools horrendous, what are libraries ?
hospitals are largely for profit ventures. St Roger hospital being the glowing exception to all you mentioned. And our real estate taxes are supposed to cover all that anyhow.

[Turtlenewz]

10:25 PM on 03/13/2011

Well said

[Genosse Joe]

01:51 PM on 03/13/2011

So, what did Illinois gained from this law?
No new taxes from online retail giant. But lots of people in the state lost their work and income.
These people stop paying their income taxes to the state.
Loss is obvious.

[DRaymond]

05:25 PM on 03/13/2011

Well to start with 'lots' of people did not lose their jobs.  There may have been plenty of affilliates, but the typical affilliate is a tiny blogger or personal site with a page of links.  They have not lost their job because being an Amazon Affilliate was never their job in the first place.
 
Most of those small affilliates will either switch to other affilliate programs from sales-tax-paying companies or switch to pay per view or pay per click advertizing on their site, neither of which is affected by the law.
 
As for the big affiliates, most of these are 'coupon sites' and are affilliates of multiple vendors.  Most don't really emphasize Amazon that much because Amazon is not the most generous program out there.  So they will have to reorganize their site to put other links where the Amazon links were or move out of state.  I suspect few will chose the expense of moving just to save their Amazon revenue.
 
So I suspect that if we follow up in a couple of months we will find that most of the 9000 current affiliates will have redesigned their sites and are making roughly what they made before.  The state will not have gained the windfall of new taxes it expected but possibly a minisclule increase from sites linking to sales-tax-paying vendors rather than Amazon.  Amazon will have quietly courted many of the former affiliates with a pay-per-click program.
 
What is really needed though is federal legislation such as proposed by Delahunt's Main Street Protection Act in the house.

[European1919]

01:23 PM on 03/13/2011

Amazon showed their true colours, when they cut off WikiLeaks without any court order or official decision of any kind. I closed my account with them then and I feel reinforced in my decision now.

Support your local bookstore or library and boycott these ...

[Genosse Joe]

01:54 PM on 03/13/2011

Amason is in business to give you goods ar the competitive price.
They are not in business to pay taxes.

If you feel that oaying taxes to government is yourpurpose in life, you do not need Amazon to live to it.
Next time you buy a book on the internet, donate $5 to yous state treasury.

[boyoboy]

01:58 PM on 03/13/2011

Support your local bookstore or library and boycott these ...

European 1919 is advocating the support of local businesses who PAY TAXES in our communities.  Reading is Fundamental!

[European1919]

02:34 PM on 03/13/2011

So corporations should not pay taxes? The first part of your moniker is defo wrong for you pal.
And no matter where I buy my books or anything else ... I pay taxes and the retailer passes them on to the state when he pays his own taxes. That is the way the system works. Basic economics, probably below undergraduate level.

[Turtlenewz]

10:27 PM on 03/13/2011

Local bookstores are all gone

[boyoboy]

04:03 PM on 03/14/2011

Not where I live.  They're struggling, like all local businesses, because of chain stores.

[inexiledeo]

01:07 PM on 03/13/2011

Ugh... amazon. Way to seem like a responsible player in the business world. It's really a stretch of the imagination to think that sales tax shouldn't apply to Amazon/Overstock.com purchases. Looks like i won't be buying things from there anymore.

[Genosse Joe]

01:57 PM on 03/13/2011

Remember - no eBay for you as well.
You are stuck with Barnes and Nobles

[inexiledeo]

02:38 PM on 03/13/2011

good point. Although, I haven't used ebay in years. I wonder if there is a list of retailers that this affects? It would be a handy way of knowing where not to shop.

[boyoboy]

09:45 PM on 03/13/2011

Better yet, we can and should support our local bookstores.  You know.  The small business people you're people are always yapping about.