State Affiliate Sales Tax Issue

On open letter to Fox News, in response to their reporting on Amazon’s firing of affiliates in Hawaii. You can watch the specific news clip here.

[Editor’s Update] Just an hour after writing this, I received an Affiliate Termination letter from Overstock.com, firing all their California affiliates. California hasn’t yet passed this Affiliate Tax, but online retailers are taking the “bull by the horns” and preemptively canning their affiliates in affected states.

Dear Fox News,

Your newscasters need an education in what an Internet affiliate is and what state sales taxes are. State sales taxes are only collected on intra-state sales, i.e. sales that occur between retailers in their state and customers in their state.

Affiliates are not owned by the online retailers, and are not physical locations for the online retailers. What affiliates do is provide pay-per-sale advertising for online retailers such as Amazon.

Affiliates are simply publishers providing advertising, not on a pay-per-insertion model (where the retailer pays to insert an ad in a magazine or newspaper) but on a pay-per-sale model where the publishers take all the risk, and the retailer only pays a commission on an actual sale.

The law is NOT on the state’s side in this case, unless they pass a law to collect state sales tax on all retailers who advertise in every newspaper and magazine published their state. For example, is New York collecting sales tax from every out-out-state advertiser in The New York Times? I think not.

And on top of it, the state affiliate sales tax will not bring any additional revenue to the state coffers, because the big Internet retailers will simply cancel all their affiliates in the affected states.

What will happen, however, is thousands of small businesses (who make their living as online affiliates) will suffer. And that WILL affect state coffers, as these small businesses go under, taking with them the jobs they provided, the state income taxes they paid, and the state sales taxes they paid on all the goods they previously had been buying.

Not exactly the outcome these state legislators are looking for, I’m afraid.

Sincerely,
Barbara J. Feldman
Solana Beach, CA