The Election Year and Nexus or "Amazon Laws"

In states with "Amazon Laws", at least Colorado, New York, North Carolina or Rhode Island, it is VITAL to contact your state congressmen and senators up for election if you OPPOSE this issue!

If you are and affiliate advertizer in Colorado, New York, North Carolina or Rhode Island, you may have heard of your state passing a "Nexus" or "Amazon" law. More precisely, this amounts to a new state sales tax or "Internet Tax". In Colorado, this law was the infamous (to affiliate advertisers!) HB 10-1193 legislation.

If you are or were an affiliate advertiser in any of these states, your Amazon Associates Account was likely summarily terminated. Other vendors like Overstock.com followed suit shortly afterward to terminate Colorado affiliates, compounding the problem. I do not know about the experiences of those in NY, NC or RI, but we in Colorado took a hit right to the bottom line of our businesses!

On March 8, I and some 4200 other Colorado Amazon Affiliates received notice from Amazon that, "Regrettably, as a result of the new law, we decided to stop advertising through Associates based in Colorado." In other words, we were fired!

If you have an anti-tax interest politically or are an affiliate advertiser in any state, you might want to keep an eye on what your legislature is proposing to boost tax revenues in your area. It appears that lawmakers practically drool over the prospect of taxing Internet revenues even as they appear completely oblivious to the difficulty of collecting the tax and whether true financial gain will be had for the state.

What has happened in our four states could well be a precedent far more widely in the US. As this is an election year, if you have strong feelings over excessive taxation issues or wish to be able to continue to make advertising moneys as an affiliate in your state, I strongly advise you to tune into what your legislator-hopefuls are up to! Otherwise you may face the same fate as those of us in Colorado who are now crippled of our ability to advertise for Amazon, Overstock.com, etc.

The feeling of legislators in Nexus Law states is that goods sold on the Internet to state residents by businesses without a physical presence in the state should incur on those purchasers a state sales tax, whereas previously no such tax was due. In Nexus Laws, states mandate Internet vendors to keep track of purchases made in these states so that those making the purchase are accountable for the state sales tax.

There are several justifications for such taxes:

• Most states in the union have seen declining revenues in these bad economic times and would like to increase money in their coffers. What handier way is there than to levy new sales taxes?
• State legislators and indeed bricks-and-mortar businesses in those states feel that taxing out-of-state vendors removes any incentive buyers have to go with an out-of-state vendor over an in-state vendor to avoid sales or use taxes.

Colorado requires that buyers make good on their sales taxes, which may not have been charged on Internet purchases. But Colorado forces vendors like Amazon to notify buyers of their Colorado tax liability. This was rejected by the giant Amazon, who called it a "voluntary tax", since indeed many taxpayers will not know about it or willingly pay it.

Although clear that they want to collect such taxes, the states usually ignore how burdensome keeping sales tax records is to Internet companies as well as to the buyer (taxpayer) who must take additional steps to remit the tax.

What becomes difficult about Nexus Laws is how collecting it should be enforced. Colorado's requirement is that out-of-state vendors keep track of but not actually collect state taxes on items sold. Their job then simply is to "remind" purchasers about their yearly unpaid state sales tax commitment in an "Important Tax Document" a vender must mail.

Will such a notice to Internet buyers actually result in tax being remitted to the state? Is it really feasible to audit Internet buyers who may owe perhaps $3 of use tax? Amazon thus terms it a "voluntary tax" that is owed by state residents, since amounts that small are unlikely to be audited.

In addition, a privacy concern has been raised by the Direct Marketing Association (DMA), who has challenged Colorado on this law. For example, Joe Blow's wife may not like the fact that some XXX Porn Internet company has sent them a statement saying state sales tax is due on Joe's copious XXX Porn Internet purchases!

In the event of an actual tax audit, will an itemized list of Joe Blow's XXX Porn purchases be required? Does that account detail (and the fact that it is a XXX Porn company) threaten his privacy?

Amazon and other vendors have decided to fight "Nexus" legislation with a variety of tactics. Loss to affiliate advertisers In Rhode Island, North Carolina and Colorado was realized when Amazon chose to fire all associates advertising for them in those states.

In addition, my understanding is that in New York, Amazon is contesting the issue in court, now burdening the judicial system. As stated above, the Direct Marketing Association (DMA) is also pursuing the legislation regarding the privacy issue in court in Colorado.

Whether the legislation is in fact legal and constitutional remains to be seen. Whether any significant tax revenue will be realized is questionable. It's my understanding that the state of Rhode Island actually experienced a decline in revenue because income tax lost to affiliate advertisers outweighed what was brought in by the Nexus tax.

For the four states currently with Nexus Laws, this election has provided a means to speak out against Nexus taxes. But those in other states, particularly affiliate advertisers, will do well to know that similar legislation in their own state could be just around the corner!

The sites, http://www.repealtheamazontax.com/ and http://blog.ariarmstrong.com/2010/03/stop-amazon-tax.html have useful information if your income stream was affected by this onerous tax.

See also Affiliate Killing "Amazon Law" Challenged in Colorado.