So Who’s Getting Screwed by the Arkansas Amazon Tax Law? The Little Guys.

Consider yourself terminated.

Ten days ago, Amazon.com announced they were shutting down their affiliate programs in Arkansas in response to a new state law, signed by Gov. Mike Beebe in April, that requires online retailers to collect sales taxes.

So who’s going to pay the price for this new law? The affiliates themselves — mostly small online operators who refer business to Amazon and other sellers through links and are paid a percentage of the sale.

Take a look at Glenn Johnson of Little Rock, who runs the Full Figure Plus blog and Full Figure Network, online businesses aimed at providing fashion information and resources for plus-sized women . (Here’s a profile of Glen from BlackEnterprise.com.)

Johnson explains that while his affiliate relationships are not his only revenue stream (he also benefits from advertising and plans to sell e-books and other products), he’ll still take a significant financial hit from losing his affiliate relationships—perhaps as much as 20 or 25 percent of his income.

“Thank goodness this is not my whole business model,” he says. “For people who it’s their entire business model, this is probably going to shut them down.”

The uncertainty surrounding which affiliates will end their Arkansas programs is the most “nerve wracking” part, Johnson says. While most of the focus has been on Amazon.com, other companies with affiliate marketing programs are rapidly pulling out of Arkansas. Overstock.com announced they were pulling out in AprilZappos.com, the shoe retailer, cut off their Arkansas affiliates on May 31. Others will likely follow.

What they say it’s about

Traditionally, consumers are responsible for paying use taxes on goods purchased out of state, but most people don’t do so. Before the era of web-based commerce, most states simply looked the other way, because the costs of enforcing the law were too high. But with the growth of online retailing, state governments fear they’re missing out on the honey pot of tax revenues that could be realized from taxing online trade.

Arkansas Sen. Jake Files, the Fort Smith Republican who sponsored the Amazon bill, emphasizes that the new law simply shifts responsibility for collecting the use tax from the customer to the business — in this case, Amazon and other entities that run affiliate marketing programs.

“It’ s not a new tax,” Files explains, noting that the use tax has been on the books for years. “People just don’t know that they’re supposed to pay this tax.” He emphasized the bill centered on the issue of “fairness”: The argument goes that since online businesses don’t have to collect sales tax, as brick-and-mortar businesses do, they enjoy an unfair advantage. That’s why Wal-Mart, Best Buy and other big retailers have been the biggest force behind lobbying for these bills.

Will the new law generate revenue for the state? I talked with an attorney at the Arkansas Dept. of Finance and Administration who said it would depend on the response of the affected online retailers.

But the experience in other states indicates that there’s little new revenue to be found (particularly when Amazon and other players simply shut down their affiliate programs in response). Rhode Island, for example, has been unable to point to an increase in sales tax collections from their 2009 Amazon law, and one Democratic legislator moved last month to repeal it.

What it’s really about

Glen Johnson
Glen Johnson of Little Rock runs the Full Figure Network and will take a financial hit from losing his affiliate relationships.

Don’t be fooled by the stated aims of this law. The Amazon tax bill isn’t really about “fairness.” It’s also not about generating revenue for the state (at least not at this stage). It’s really about creating a confusing and uneven patchwork of state policies, in the hope that Congress will step in with federal action to clarify the matter.

Federal action is the solution that the big players, like Wal-Mart and even Amazon, want. It has the feel of one of those Cold War proxy battles where superpowers are running the board while the guys on the ground take the bullets.

That’s the message to the affiliates, like Glen Johnson. After all, they’re just pawns on chessboard, and Wal-Mart and Amazon are calling the moves. These guys, they don’t have lobbyists, and they’re expendable. So screw ‘em, right?

I’m on the lookout for more Arkansas entrepreneurs who are getting the shaft under this law, and have some feelers out to some other folks. Let me know if you know of others.

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12 thoughts on “So Who’s Getting Screwed by the Arkansas Amazon Tax Law? The Little Guys.

  • June 20, 2011 at 6:33 pm
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    If Arkansas passed a restaurant tax but DFA only collected from sports bars…you can be sure the men would start complaining that it was unfair. So then in order to correct the flaw in the collection of this tax, the legislators passed a bill saying the tax must be collected in all restaurants. This is basically what happened. I guess other restaurants might complain that their taxes were increased–but it wasn’t. The collection process was corrected. Yes, the fru-fru Crumpet Tea Room would now have to charge the sales tax just like the sports bar. My suggestion: Lower the tax across the board.

    Reply
  • June 20, 2011 at 10:27 pm
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    Donna Hutchinson: thank you for your explanation. My understanding is that you voted for increased tax collection and that you “suggest” lower taxes across the board. If I was a legislator I wouldn’t vote for more taxes and I would damn sure do more than “suggest” lower ones. One of Arkansas Republicans big problems is that they “suggest” ideas but never follow through.

    Reply
  • June 21, 2011 at 9:58 pm
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    Here is the flaw in that argument though. Amazon has pulled its affiliate program and will still NOT have to collect sales tax when someone in Arkansas buys something from their site.

    It would be very cost inefficient for Amazon to set up a system to collect the correct amount of Sales tax from every area in the state.

    The solution is either on the Federal level OR to decrease the taxes on business already in the state.

    If they find a way to charge sales tax on internet sales, will we then have to come back and force a waiting period when you buy something from Wal-Mart, Target etc in the name of fairness. After all, when I order something online, I have to wait several days UNLESS I pay for next day shipping (which is not cheap).

    On a side note, I have had several people contact me on how will this will affect them including a person on Social Security using Amazon to make a little extra money.

    Ironically this bill could end up hurting (in a small way) big box stores like Wal-Mart because chances are some people were spending the extra money they made online at Wal-Mart from Amazon.

    Here to Serve,
    David Meeks
    State Representative

    Reply
  • June 22, 2011 at 6:35 am
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    Gent:
    We’re in trouble! Here we have two Republican State Representatives chiming in on this issue. One voted for more taxes. The other proposes a “Federal level” solution (even though his website says “Protect States[’] Rights.”) http://www.whoisdavidmeeks.com/home.html

    Hey! That’s a new oxymoron — Federal-level solution.

    Under Rep. Hutchinson’s sexist analogy, the result is that ALL restaurants are forced to close because all the highways that lead to them are now blocked. In order to collect pennies in sales tax revenues, the state loses dollars of taxable income.

    Hutchinson says: “If Arkansas passed a restaurant tax but DFA only collected from sports bars…in order to correct the flaw in the collection of this tax, the legislators passed a bill saying the tax must be collected in all restaurants.”

    Flaw #1: Passing a restaurant tax.
    Flaw #2: Not firing the person(s) at DFA who is/are not collecting the tax from all restaurants as stated in the first flaw.
    Flaw #3: Passing another law to tax restaurants in an effort to fix the first two flaws.

    Reply
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