California’s Online Marketers Hit Hard by Amazon Internet Sales Taxes

But for the thousands of affiliates in the state now set adrift by Amazon and Overstock, another major out-of-state player, the law is an unfair and misguided attempt to raise revenues on the backs of struggling mom-and-pop businesses.

Rather than bring in tax dollars, they say, it will instead drive away scores of entrepreneurs California needs to innovate its way out of its economic malaise.

“None of us are against a level playing field,” said Robert Smahl with privately held Ebates, an online shopping site in San Francisco with 50 employees. “But this is not the way to do it. You’ve just penalized a small segment of people who don’t have the money to fight the legislation. I don’t think the lawmakers understand that this won’t change anything and it won’t hurt Amazon at all.”

Many affiliates getting hurt are pint-size, like Silicon Valley mom-blogger Tina Case’s Moms Who Click, a camera-buff site that brings in a few hundred dollars monthly.

Her husband works, so she’ll simply lose “the icing on the cake.” Still, she’s angry.

“The law is ridiculous. If the purpose is to generate tax revenues, then by putting affiliates out of business the state’s losing the income taxes we were paying. This will hurt the economy more than help it.”

More than 70 affiliates have already left California, say fellow site-owners, in some cases after being wooed by states such as Texas and Arizona that are anxious to reel in business-tax revenue to shore up their own battered budgets. Other affiliates are brainstorming new business models that would allow them to keep their sites up and running. And still others are waiting to see if an Amazon-backed initiative to roll back the law makes it onto the ballot early next year.

Keith Posehn, a San Diego marketer who’s considering leaving the state after losing 30 percent of his revenue, says the new law complicates an already cutthroat business.

The largest of online marketers will leave California and set up across the border in Nevada or Arizona. Others will just absorbed reduced earning capacity and spend less and hope the law changes.

In the meantime, the “little guy” gets hurt while the Big Box Brick and Mortar stores duke it out with Amazon in the political arena.

But, don’t say I didn’t tell you so months ago.

By the way, this issue of internet sales taxation will not be settled until there is some federal legislation or a decision by a federal appellate court on the nexus issue.