Update June 2014: Judging from available reports, the California online tax worked. It generated millions of dollars for the state. And most notably, Amazon didn’t follow through with its promise to sever ties with California-based affiliate marketers. Instead, the online retailer opened several distribution centers in the state, creating tens of thousands of new jobs.
The California online tax passed. State legislators voted to tax Internet retailers on out-of-state sales. Formally, its know as an Internet nexus sales tax; practically, it means Amazon will most likely refuse to work with affiliates living in California.
25,000 websites could be affected by Amazon’s decision to pull out of California. The new Internet tax rule says that even if retailers don’t have a physical presence in California they still have to collect sales tax on transactions from the state. In other words, if you live in California and purchase something from an out-of-state retailer, that retailer will have to remit sales tax to California for your purchase — a cost that will undoubtedly be passed on to Californians.
Whether or not this new California online tax will offset the state’s deficit remains to be seen. However, some in the online retail industry see this latest act by the state government California as a blow to weaken California’s already soft economy and could drive affiliate marketers out of business in California. Such a move, online retail industry experts say, won’t raise the $200 million in revenue projected by state lawmakers. Instead, they say, the move by Sacramento will force online retailers without a physical presence in the state into self-preservation mode and force online retailers to do business elsewhere – as has already happened with Amazon.com.
In the letter sent to California-based affiliates, Amazon regrets having to sever ties with so many people who have referred multitudes of consumers to Amazon through affiliate marketing. At the same time, Amazon defends their decision to excise the California contingent of affiliates as a business decision. A decision they can hopefully rescind in the future.
Understandably, affiliate marketers are outraged, hurt, and feeling like they’re caught in the fiery inferno of angst over the potential of losing up to 30% or more of their income from referring people to Amazon, Overstock.com, and other online retailers that do not have a physical presence in the Golden State.
Some focus their anger at Sacramento for enacting the nexus tax because Amazon and others would make – and have made – the decision to sever their relationship with affiliate marketers in order to avoid having to collect and pay state sales tax.
Others point the finger of blame at Amazon and CEO Jeff Bezos for being the big business that crushes the small businesses, therefore stifling competition. Many holding this point of view are fighting for a level playing field in the realm of online retail so small-scale retailers and affiliates can compete with the online behemoth’s like Amazon.
Now that the relationship between Amazon and its affiliates in California has suffered the same fate as vast parts of the Amazon rainforest due to Sacramento enacting a nexus tax on online retailers not having a physical presence in California, now what? To be sure, Arizona would love to bring more jobs to the state to help Arizona economy grow and thrive by having affiliates move to Arizona .
If you run an online retail business and have questions about the California online tax or you’re looking to expand into other states, contact me today to start exploring your legal options.