California Affiliate Businesses Hurt By Internet Sales Tax Law

As you know, I was fired by Amazon.com as a sales affiliate because of the recently passed and enacted California internet sales tax legislation. But, others are feeling the pain even more acutely.

For several years now, the military museum in Old Sacramento has quietly earned a nice little income by acting as a sales rep for Amazon.com.

But this small nonprofit, along with thousands of other California organizations and businesses, has been caught in an epic standoff between Amazon and state officials.

The state enacted a law last week requiring Amazon and other Internet retailers to begin collecting sales tax from California purchasers. Amazon says the law is unconstitutional and it won’t collect the tax.

While legal experts expect Amazon to sue the state, the online giant already is taking action of a different sort. Hoping to exempt itself from the law, Amazon has fired its 10,000 California affiliates, cutting off their commissions. Scores of other e-commerce companies affected by the law, including Overstock.com and a slew of smaller firms, have done the same.

Their decisions won’t prevent Californians from buying from Amazon and other online retailers.

But they will affect organizations like the California State Military Museum, which earned about $2,000 a year as an Amazon affiliate.

“That was our book-buying budget,” said Dan Sebby, the museum’s director.

A Camarillo trade group, the Performance Marketing Association, says 25,000 California businesses, individuals and nonprofits make commissions as affiliates for online retailers. They place links on their websites to the retailers, and earn commissions when visitors “click through” to make a purchase.

For many, it’s a sidelight. For others, it’s their livelihood. Rebecca Madigan, the trade group’s executive director and a critic of the new law, said the California affiliates will lose 25 percent of their Internet income as a result of the controversy.

“Hundreds and hundreds of retailers have terminated their affiliations,” she said.

California isn’t the first state to feud with Amazon. The Seattle retailer dumped affiliates in several other states, including Connecticut and Arkansas, that imposed an Internet sales tax. It has also rewarded states that remain tax free.

Citing a business-friendly climate, Amazon announced Wednesday it’s building a major distribution facility in Indiana. At the same time, it’s continuing a lengthy court fight over a New York law that imposes the tax requirement.

So, what will happen is the large sales affiliates will leave California, move to states that are not forcing Amazon.com et. al. to collect the tax and the State of California will attempt to force collection in October. Amazon and the others will simply sue.

There will be NO new tax revenue for California because of internet sales taxes and, in fact, will lose income, sales taxes, property taxes, etc. from those who will move.

Not a winner here for the California state budget and certainly not for California taxpayers.