More on Amazon Sales Tax: It’s Not Just Amazon! (Updated!)

Nexus tax states map
State level efforts to collect sales tax from online retailers will only backfire

I’m mildly obsessed with the Amazon sales tax law I wrote about earlier in the week, which targets affiliate marketing relationships in a misguided effort to rain down money on state government. I hope you like reading about that issue. Because if not, hoo boy, are you in for a rough ride.

I want to emphasize that while Amazon.com is the biggest target, because they’re the major player in online sales and affiliate marketing, the impact stretches much, much further. While Amazon and Overstock.com generated news coverage for terminating their affiliate contracts in Arkansas, there’s a longer list of retailers that are pulling up stakes from the state.

I talked with Judi Moore, a Conway-based affiliate marketer who runs LunchBreakShopping.com along with a stable of other niche sites, who has seen her marketing relationships with dozens of merchants summarily ended as retailers beat a hasty retreat from Arkansas. Her efforts to inform legislators about the effects of the Amazon tax bill were “discouraging,” she said.

“Truthfully, if I thought education of the legislators would help, I’d be racing in that direction,” Moore said. “Affiliate marketing is kind of invisible, and none of them are making the connection that we are viable small businesses in their state, that they just stepped on. Hard.

“The way affiliate marketing works, Amazon doesn’t need me to make sales in Arkansas,” Moore explained. “They can direct market to Arkansas. They can get clicks from a website in Florida that happen to come from somebody in Arkansas. That’s just the business.”

Moore provided a list of some of the merchants she has worked with on her sites, all of whom are ending their affiliate contracts in Arkansas in response to the Amazon sales tax law signed by Gov. Mike Beebe in April:

Rebecca Madigan, executive director of the Performance Marketing Association (PMA), an industry group headquartered in California, sent along a list of retailers who have pulled their online marketing and advertising out of other states following the passage of nexus sales tax laws. She says it should be expected that these companies are “likely to terminate” in Arkansas, as well, based on their previous history.

“They don’t publicize their actions or even their intentions, so we get lists from affiliates,” she says. “There’s every reason to believe they will terminate in Arkansas, as with every state where this passes…The same companies have terminated in every state.” (So far, New York, Connecticut, Rhode Island, North Carolina and Illinois have passed similar nexus laws. PMA has filed suit against Illinois, arguing the law is unconstitutional).

Here’s PMA’s list (a few of these names overlap with Moore’s list above). Again, not all of these are confirmed as having left Arkansas, but if the pattern holds as it’s developed in other states, they’re likely to pull out:

  • Amerimark
  • BedBathStore.com
  • Bodybuild.com
  • CSN Stores
  • DealYard.com
  • Hayneedle
  • Lamps Plus
  • ShindigZ
  • StumpsParty
  • ThinkGeek
  • Accessory Geeks
  • Air n Water
  • Annie’s Costumes
  • Apex CCTV
  • Blinds.com
  • Bodybuilding
  • BuyCostumes
  • Compact Appliance
  • Costume Kingdom
  • EyeBuyDirect
  • Gardeners Supply Company
  • Golf Balls
  • Just Blinds
  • Kegerator
  • Lamps Plus
  • Living Direct
  • Luggage Online
  • MissNow
  • Mrs Motorcycle Superstore
  • OfficeFurniture.com
  • Oneida
  • Onlineshoes
  • Overstock
  • PortableAirShop
  • RazorGator
  • ShindigZ
  • SimplyDehumidifiers
  • SkinCubed
  • Skype
  • Spiritline
  • StarWarsShop
  • StumpsParty
  • ThinkGeek
  • TickCo
  • Wine Cooler Direct

Now let’s stipulate that Arkansas will survive the loss of affiliate marketing from SimplyDehumidifiers and Wine Cooler Direct. But is the Arkansas economy really such a powerhouse that our state’s leaders are willing to tell scores of companies to go pound sand and take their dirty money with them?

Keep in mind that as each of these companies end their affiliate relationships in Arkansas, they won’t be paying any sales taxes in the state, which was the whole point of this exercise to begin with. Moore is pointed in her assessment: “There’s not going to be any money coming in because of this incompetent law,” she predicts, since all the targeted companies are simply ending their relationships in the state.

But it’s OK! It was all for “fairness,” so I’m sure it will work out just fine.

UPDATE: Glen Johnson with Full Figure Plus sends a note that he received an email from Redcats USA, which holds a variety of online retailing outlets (Woman Within, Roaman’s, KingSize Direct, OneStopPlus, Brylane Home, Bargain Catalog Outlet and Jessica London) is terminating affiliate contracts in Arkansas as of June 24. The hits keep on comin’.

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16 thoughts on “More on Amazon Sales Tax: It’s Not Just Amazon! (Updated!)

  • June 22, 2011 at 9:12 pm
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    DK says: “Now let’s stipulate that Arkansas will survive the loss of affiliate marketing from SimplyDehumidifiers and Wine Cooler Direct.”

    For a minute there I was gonna disagree with you ’cause I thought you were talkin’ about those sissified Bartles and Jaymes Apple Passions you used to drink in college. Dude, I told you back then it wasn’t good for your rep.

    Reply
  • June 23, 2011 at 12:14 pm
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    ShoeBuy, Zappos, and Skype! Noooo!!! NOT Wine Cooler Direct!!! Now I’m pissed.
    Seriously, though, wasn’t this warned about before the honorable Jake Files (a Republican) got the legislation passed?

    Reply
  • June 23, 2011 at 12:53 pm
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    Belle,
    Yes, I believe it was warned about before the legislation was passed, but I’m not convinced that anyone really grasped how extensive it would be. It seems like those concerns were ignored as relatively trivial. As the retailers pull their marketing and advertising dollars from Arkansas, it’s worth revisiting now that the consequences are becoming clearer.
    D.

    Reply
  • June 23, 2011 at 3:20 pm
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    What the arkansas legislators have succeeded in doing is REMOVING MONEY from arkansas’ economy…anyone in arkansas who was making $ via affiliate programs isn’t anymore…in the end less income tax, less money earned and less money to spend in AR.

    Reply
  • June 23, 2011 at 4:27 pm
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    Another point totally missed in the article and by the legislators: All of those affiliates who are terminated by the online merchants will be earning considerably less income – and NOT PAYING AS MUCH INCOME TAX – and will not have as much disposable income to spend within their home state. That will result in considerable loss of income for Arkansas.

    There will also be several entrepreneurs who will (literally) move to another state – taking their contribution to the Arkansas GNP elsewhere. Shame on Arkansas legislators and the governor for being so short-sighted.

    Reply
  • June 23, 2011 at 5:14 pm
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    The large affiliate programs these laws target will just terminate affiliates from the states who pass these laws, eliminating any claimed nexus and resulting in no sales tax being collected.

    Some of the affiliates will move to other states, bringing their income tax, businesses, and spending to their new state. This will result in decreased revenue for the state.

    Some of the affiliates will remain, but will lose 30-70% of their income. They’ll pay less income tax since they have less income. They’ll have considerably less disposable income to spend within the state. Some will go out of business and become a burden on the state rather than an income-producing citizen.

    It’s a losing proposition for the states AND the affiliates.

    I would suggest looking at who stands to benefit and who is funding the push for this legislation: The big box retailers. They’re using this to fight their online competitors. Affiliates are the collateral damage. And states are the unwitting allies, who don’t realize that they’re hurting themselves.

    Reply
  • June 25, 2011 at 8:32 am
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    Don’t be too made at Senator Files. If history is any guide, he will quit soon anyway. El niño nunca ha terminado nada.

    Reply
  • June 25, 2011 at 1:11 pm
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    BIG question: I’m wondering, will this law effect the ability of Arkansas residents to sell stuff on Amazon or other sites? Does Amazon’s system charge sales tax to people in AR if the seller is in AR?

    Reply
    • June 25, 2011 at 3:03 pm
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      Dave,
      If my understanding of the current law is correct, it strictly focuses on the question of affiliate relationships. However, the scenario you outline seems like a logical next step.

      In addition, the law as written applies to sellers who have more than $10,000 in gross sales annually—so it wouldn’t apply to the guy or girl who’s selling a few CDs or books on Amazon or eBay for extra cash. And of course, the retailers that are ending their contract relationships in Arkansas are pulling out entirely and ending ALL their contracts, rather than trying to sort out who’s selling less than $10,000 per year.
      D.

      Reply
  • June 25, 2011 at 4:52 pm
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    Searching for some way around this new law, I found the following page:
    http://lyndsysimon.com/amazon-affiliate-tax-loophole/

    The author is from AR. Near the bottom, under the heading “The Solution”, the author’s suggested solution is forming an out of state LLC. It’s my understanding that income tax for an LLC is paid via your personal income tax return.

    I would think if you did as suggested, that you could get into trouble when tax time comes, and you include a 1099 from Amazon.

    Anyone else have an opinion on this? What do you think, David?

    Reply
  • June 25, 2011 at 5:46 pm
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    Isn’t Files the Senator that presented bills that benefitted his personal business? Like the one that allows local governments to pass tax for “economic development” projects. And the constitutional amendment that will be voted on in November next yea that will allow local governments to issue bonds again- for “economic development projects”.

    Reply
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