California, along with many other states, is broke. As part of an attempt to create more revenue, California passed a more aggressive law to force online merchants to collect sales tax. A 1992 Supreme Court decision stated that retailers that don’t have a physical presence in a state don’t have to collect sales taxes for sales to that state. But some states have passed new laws that redefine “physical presence” to include online affiliates and any subsidiaries.
Amazon.com affiliates are the thousands of websites like this one, where if you click on a link to a book or other product and buy something within a certain time frame, I get a commission of a few percent of your purchase. It’s a safe bet that the majority of blogs you read participate, even if the actual revenue is relatively small. But, by California’s new definition, if just one person is both an affiliate and lives in California, then Amazon.com has to start collecting sales tax from everyone in the state. What’s Amazon’s solution? Easy, cut off all CA affiliates immediately. That’s what they’ve done everywhere else. From CNN:
Other states that have passed the so-called “Amazon tax” in recent years include Connecticut, Illinois, New York, North Carolina, Arkansas and Rhode Island. The retailer has dropped the associates program in all these states, except New York, where it has a brought a lawsuit against the state.
Many other merchants that operate online like Overstock.com have been doing the same thing. They’d much rather lose the incremental revenue from affiliates than have to effectively increase prices for all customers from an entire state. For many website owners, Amazon is their primary source of income, and this move will force many of them to pick up and move.
At the same time, not paying sales tax is one of the expected benefits of buying from Amazon. (Even though in many states you’re technically still supposed to calculate and send it in manually, people rarely do.) This understandably annoys the national brick-and-mortar merchants like Walmart or Target.
As both a consumer and an Amazon affiliate, I am a concerned onlooker. These are two behemoths playing a high-stakes game, but I feel empathy towards those small businesses that just lost a huge chunk of their revenue overnight through no fault of their own. They seem to be collateral damage in this battle.