Amazon nixes Colorado affiliates; State tax battles proliferate

Amazon nixes Colorado affiliates; State tax battles proliferate

Summary: The states are eyeing Internet retailer taxes as a way to balance budgets and giants like Amazon are in the crosshairs. The latest state tax battleground is Colorado, but the fight is likely to spread.

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The states are eyeing Internet retailer taxes as a way to balance budgets and giants like Amazon are in the crosshairs. The latest state tax battleground is Colorado, but the fight is likely to spread.

Amazon's response to Colorado's state tax issue---Governor Bill Ritter signed a bill that puts new restrictions and taxes on out-of-state retailers like Amazon---has been consistent. When things go against Amazon the retailer cuts its affiliate programs in that state.

As CNet's Declan McCullagh notes, 15 other states have considered laws targeting Amazon that don't charge sales taxes. A 1992 Supreme Court ruling says that retailers can't be forced to collect state taxes if they don't have offices in those states. States have looked at affiliate programs as offices to trigger tax collections. Not so surprisingly, Amazon's first move is to nix state affiliate programs.

Brad Feld learned the drill the hard way. Feld posted Amazon's letter, that went like this in part:

We are writing from the Amazon Associates Program to inform you that the Colorado government recently enacted a law to impose sales tax regulations on online retailers. The regulations are burdensome and no other state has similar rules....Regrettably, as a result of the new law, we have decided to stop advertising through Associates based in Colorado. We plan to continue to sell to Colorado residents, however, and will advertise through other channels, including through Associates based in other states.

Amazon then maintains that Colorado's rules are unconstitutional and other experts seem to agree.

As previously reported, Amazon's move to nuke affiliate programs actually boosts its earnings. Affiliate programs are marketing expenses that would disappear if tax happy states proceed. In the end, you could argue that state taxes and Amazon's move to cut affiliates ultimately hurt small businesses.

Related: Amazon vs. tax happy states: E-tailer could nuke Associates program and still win

The open question here is whether states ultimately lose revenue with these tax policies. Every state has a different tax wrinkle so compliance gets a bit ridiculous. The broader question is whether the lack of state taxes would be a big deterrent to e-commerce in general.

According to Forrester, Web shopping will account for 8 percent of total retail sales by 2014. It's doubtful that tax flaps are going to stop that march, but this fight is just going to escalate.

Topics: Banking, Amazon, Government, Government US

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55 comments
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  • Love it!

    I commend Amazon for sticking up and just pulling
    out. If only other large companies could stop
    being politically neutral, and just do the same.
    Imagine if Microsoft just threw in the towel in
    the EU, and said "You dont like it? Fine, we wont
    sell to you."
    unredeemed
    • Of course, Microsoft wouldn't dare do that...

      ... because it would leave that market wide open for Microsoft's
      competitors and kill their dominance.
      Vulpinemac
  • Fine, but don't complain when tax funded services dry up.

    Wanting lower taxes is one thing, but keep in mind that
    all public services are funded by taxes. Is your child's
    education suffering due to inadequate staffing? Taxes
    support school boards. Broke another spring on that
    pothole that never seems to get filled? Highway
    department "rationalized" services to make their
    budget stretch. Looking for a rest-stop along the
    Interstate? Better cross your legs, not enough money
    was available to keep them clean and safe. Can't find a
    cop when you need one? Ooops - police services laid
    off officers when their funding was cut. Fire
    department's 20 year old truck breaks down on the
    way to your house? Oh well, think of the taxes you
    saved.
    snberk341
    • Yeah, yeah, yeah, we've heard it before...

      First, I'm not a "Tea Party" loonie, and I know taxes are necessary and important, but this "spread taxes over everything we do" mantra is bogus. I live in Arizona, the worst deficit state in our nation, but still have the option to pay my taxes to the state or any strange, off-the-wall charter school or charity that can get on the "approved" list at tax time. While my state lays off workers, my taxes can go to "flat-earth" charter schools to spend without any supervision or credibility. The problem is not "no taxes", it's the gutless politicians who can be bribed into cutting taxes on people wealthy enough to bribe them, and then giving tax breaks to anyone who has an agenda.
      robertcape@...
    • Taxes

      People expect too much from the government. Maybe they should start moving the politicians towards actually doing their jobs and not just throwing $$$ at a problem.

      I agree with Amazon's position.
      1djk1
    • Fine

      Fine then go after the people that are breaking
      the law!
      In most states that have sales tax that I know of
      as a resident you are required to submit taxes due
      for goods or services for which taxes were not
      paid. Try purchasing a car in a different state
      then register it in your state see how fast they
      collect the sales tax from you they help you
      report that one.
      jmcinerney@...
      • Self reporting

        Very true. I don't know anyone that has ever self-reported untaxed purchases on their tax return. I guess people feel that as long as everyone else is cheating the system then its ok for them to do it too.
        trybble1
        • Re: Self reporting

          I think there is a lot of this sentiment: Why shouldn't the people cheat the system that is cheating them? That's fair.
          Get-Smart
    • I dream of that day happening.

      No taxes, no governmentent BS, lies and theft. Oh my, how horrible.
      No_Ax_to_Grind
    • Fine, but don't complain when tax funded services dry up.

      what are you a f___ing democrat
      bwchato
      • Nope. (nt)

        nt
        snberk341
    • Do you even know?

      Do you even know how small of a state budget those items are? Aside from education.
      mikefarinha
    • What services are being provided?

      Ahh, but taxes are meant to subsidize costs
      associated with supporting the business. If I own
      a brick and mortar location then I pay taxes for
      police service, fire service, road repair, etc.
      How can cities and states collect revenue for
      services when there are no services being
      provided. In this case, the state is merely trying
      to raise revenues by fleecing a business in
      another state.
      rcosby
      • How about the roads.

        All those goods ordered from out of state are coming
        in by truck. Are you willing to pay some of your taxes
        to pay for your neighbour's use of the road because
        they order more goods online than you?

        Are you willing to have your taxes pay the police to
        make sure those out of state trucks, with your
        neighbours shopping, are safe as they drive by the
        school with your kids - or your friends and famiies'
        kids?

        If you don't want your taxes to subsidize your
        neighbours tax free activities, then why should they
        subsidize yours.

        Just asking....
        snberk341
        • Shipping Taxes

          Shipping companies pay taxes in Colorado. They pay income taxes, employment taxes, property taxes, gasoline taxes, etc.

          Those taxes are passed on to the consumer in the form of shipping costs.

          You buy something from Amazon and you pay the shipping costs.

          The use of the roads is paid for.
          metroengineer
          • Only if they are Colorado shipping companies.

            If the shipping company is located out of state, then all
            income and employment taxes do not contribute to
            Colorado roads. If the truck gets in and out on a tank
            of fuel, then no gas tax.

            So now, Colorado taxpayers are enabling an out of
            state truck company make a profit shipping tax free
            good to your neighbours.

            And most trucking companies locate as close to the
            distribution centre as possible.
            snberk341
          • They are Colorado shipping companies

            Those UPS, USPS and FEDEX drivers did not drive all the way from Kentucky to deliver a package to a Colorado resident.

            They have facilities and employees right here in Colorado. They pay taxes and buy gasoline, right here in Colorado.
            metroengineer
          • And what if it's something you download from amazon?

            What then?

            No roads involved there.

            Besides, any independent shipping companies from outside Colorado will be paying their own taxes in their respective home states, so they aren't getting a free road pass, either.

            No, what Colorado politicians want to do is tax something for nothing and they will lose on this. And rightfully so.
            still not nice
          • Really, the issue is taxes in general.

            We can sit here and debate whether Amazon should be taxed on this,
            but not that.... and the debate gets boring real fast, and really it's not
            the issue at all.

            The issue is how much tax is reasonable. I will leave you with this
            thought. Nations that tax more, but spend that money on public
            services are doing better than the US in many many measures.

            Education: American high school students are being left behind. In
            the OECD only New Zealand, Turkey, Spain, and Mexico now have high
            school completion rates worse than the US. In Canada, high school
            students at 15 are nearly a few year ahead of the their American
            counterparts in what they know (Link at the bottom)

            Health: In industrialized nations where the government is involved,
            partially or fully, in funding the medical system (which is just about all
            of them, except the US) people live longer, infant mortality is lower,
            and people are healthier. Despite the fact that Americans spend more
            on health care than anyone else.

            Personal Safety: In nations where taxation is used to minimize the
            disparity between the rich and the poor, people are safer. Property
            crime is lower, murder rates and violent crimes are lower.

            Getting Ahead: Several years ago the BBC did a comparison between
            the US and Canada. It found that children born into poor families in
            Canada had a better chance of making a better life for themselves as
            adults than American poor children. Working Hard was not always
            enough in itself to make something of yourself, being able to use
            some government support was also needed sometimes.

            Personal Wealth: If you don't count the top 1% of the wealthiest
            people of the nations you are comparing.... Americans aren't actually
            the wealthiest nation on earth. Its just the super-rich who are the
            weatlthiest.

            Economy: Not a single Canadian Bank has failed since the depression.
            Not a single one. And in fact the Big 5 are now buying up all sorts of
            regional banks in the US. Canadian government - despite it's "free-
            market" philosophy - felt compelled to throw 100s of $millions at the
            Canadian Big 5 banks to keep them competitive with the US banks,
            that were using their bailout money not to pay back their investors but
            to buyout other banks. That is irony, when a government accused of
            being socialist by Americans has to pump money into their banks -
            when they wouldn't have otherwise - because the free-market
            government gets chicken and doesn't let the free-market run it's
            course. Sigh.

            http://www.nytimes.com/2010/03/10/education/10educ.html?hpw
            snberk341
          • How about PIIGS?

            "Nations that tax more, but spend that money on public services are doing better than the US in many many measures."
            Except by the measure of actually being fiscally viable. It is possible to find examples when hand-picking nations based on apples-to-orange comparisons (IOW how they handle themselves internally) however why don't you talk about the PIIGS in total, not just show the 'success' in one or two areas?

            You didn't seem to mention anything about Greece, why is that?
            netuzer