Mimsy Were the Borogoves

Editorials: Where I rant to the wall about politics. And sometimes the wall rants back.

California threatens Amazon, kills affiliate programs

Jerry Stratton, June 30, 2011

Everyone is out blaming Amazon for doing what California asked them to do under threat. If you think Amazon should have started charging sales taxes in California rather than just end the affiliate program that California used as a hook to get them, I’ve got a deal for you, but first, you must:

  1. Hire a tax lawyer who understands California tax law
  2. Hire an accountant who understands California tax law
  3. Buy special, expensive software to handle all of your sales, but still be liable when that software is wrong
  4. Be ready to open your home and records at any time to California tax compliance specialists

If every state can bring an out-of-state company under their tax authority, then every state can force that company to waste time and money at any moment. Think about what you would go through and the waste of time and expense you’d incur if your state government decided to audit you today. Then multiply this and all of the above expenses by the size of Amazon compared to you and by 50 because Amazon sends to every state—or more if cities and counties get into the act. Amazon would be crazy not to respond to California‘s threat by doing what California asked them to do—end the affiliate program or be subject to California tax laws in addition to the laws of Amazon’s own state.

People seem to think that Amazon is ending the affiliate program in California as a retaliation. They’re doing it because California asked them to do it. California said, “Hey, Amazon! If you keep the affiliate program in California, you will need to hire tax experts across multiple fields and have someone ready to talk to our agents any time we want to inspect your records. If you don’t want that, end the affiliate program.”

California threatened Amazon if Amazon kept the affiliate program, and Amazon complied by removing the affiliate program. Regulations cost money and they cost more than what companies like Amazon and Overstock get from having an affiliate program. Having to deal with tax regulations for all fifty states, or, worse, all of thousands of municipalities, is an obvious resource drain, and worse, it will severely hurt startups and small businesses. Affiliate programs cost money, and aren’t really worth that kind of trouble.

I really hate this idea that when the government threatens some person or company, and that person/company backs down in the face of the threats, that that person/company is somehow at fault for doing what the government obviously wants them to do.

This is not about tax revenue. There is a solution if you want to tax out-of-state businesses but don’t want to kill startups and jobs. Make the tax law be the tax law of the state the seller is in, not the state the buyer is in. Then, the company bundles it up with zip codes and sends it to their own state’s tax bureaucracy to be distributed. It doesn’t require that each company buy and install bureaucracy event horizon software. It doesn’t require them to do anything other than comply with the tax laws they’re already complying with.

What I don’t understand is why California, and other states, don’t want affiliate programs. They know that the companies that offer affiliate programs will cancel them if threatened in this manner. Even if the first state to try it were so stupid as to not realize that affiliate programs aren’t worth the tax headaches, at this point they know. California isn’t trying to extract more tax money; they’re willing to forego tax money from affiliate earnings in order to kill the affiliate program. Why?

In response to Punishing low-tax states: An Internet sales tax that looks at the customer’s state instead of the seller’s state punishes states with low sales taxes and inhibits competition.

  1. <- Regulations cost money
  2. Marketplace unfairness ->