Amazon Tax Already Killing CA Biz

John Seiler:

The “Amazon” tax imposed Gov. Jerry “Jobs Killer” Brown and the Democratic Legislature, at the behest of the government unions that control them, already is killing scores of California businesses. Reports Jan Norman of the Orange County Register:

Thousands of small-business owners — not to mention schools and nonprofits — are scrambling to figure out how much revenue they’ll lose as hundreds of online retailers cancel their affiliate programs in response to California’s new Internet sales tax law.

Note that it isn’t really Amazon that’s being hurt here, even though everybody calls it the “Amazon tax,” including Democratic staffers I talked to in the Legislature. It’s the little Mom and Pop stores that are being destroyed.

Killing Charities

Also note that charities also are hurt. Your local soup kitchen might put up a link on its Web site to some products on Amazon. When folks buy those products, the soup kitchen gets an affiliate commission. Now, they won’t get that money.

So, the poor will have to depend even more on government, adding another expense to the state budget.

Norman also provides the best description I’ve seen of how things work with these little affiliates — the Mom and Pops and the charities “Jobs Killer” Brown destroyed:

Here’s how it works: Let’s say you are a California resident with a website. You don’t even sell anything online. But you sign up to be an affiliate of  a retailer and put a  link to that retailer’s e-commerce site on your own website.

If a visitor to your site clicks on that link and buys something, the retailer pays you a small commission.

If the online retailer has a physical presence in California — such as Walmart or Target, which have been supporters of the new law — it must charge California sales tax from California buyers.

But many of these online retailers have no physical presence (stores, warehouses, headquarters etc.) in California. And they have not been collecting California sales tax.

Understand that retailers don’t pay sales tax. They collect it for the state or local government entity.

So, let’s say your little Mom and Pop book review site links its reviews to the books sold on Amazon. The purchaser might be in Massachusetts. And the book bought might be shipped from Nevada. The actual physical object — the book — never even comes to California.

But because the Mom and Pop store is located in Taxifornia, and electrons pass into and out of their business computer, that’s considered a “nexus,” that is, a physical presence of Amazon — or some other store — in California. How absurd.

Norman cites a couple of victims:

Tom Messick, owner of employeemall.com in Yorba Linda, provides employee discount programs for hundreds of companies nationwide. He has affiliate relationships with 300 companies that pay him a commission when employees use their products or services, such as yoga. He estimates the revenue is about 25 percent of his business.

Amazon is not one of the companies Messick is affiliated with. But to date, 15 of these companies have terminated their affiliate programs with Messick and other California firms “and the notices are coming in on a daily basis,” he said.

Amazon wasn’t even a player in “Jobs Killer” Brown’s attack on Messick’s business.

“It’s not so much the loss of revenue,” Messick said. “What bother me is having a competitive disadvantage with companies in other states that provide employee discounts.”

SurfMyAds.com in Santa Monica will be hit even harder. The company operates an international network of shopping sites such as PromotionalCodes.com, CouponWinner.com, myShoes.com and Coupons.ca. Affiliate commissions are the company’s primary source of revenue.

“So far we have received termination notifications from just over 100 of our merchant partners,” said Alexis Caldwell, director of affiliate and partner marketing. “However, we expect this number to increase over the coming weeks as more merchants receive word from their legal teams that they must sever their ties with California affiliates.”

Ebates in San Francisco is another online shopping site that has an active affiliates program. It has received more than 60 termination notices from online retailers. “We will see what the impacts are on our business over the coming weeks,” said Ebates official Rob Smahl. “If we cannot restructure our working relationships with the retailers who terminated their affiliate programs, then we will consider all options as necessary up to moving out of state.”

Loren Bendele, CEO at Savings.com in Los Angeles, said, “Essentially this is a California small business tax, so ultimately it hurts businesses like ours. When Illinois passed this law, all the major players in our industry moved out of the state. I’m afraid this will have a similar impact on California and cause the tech industry to migrate to other states.”

‘Nexus’ Absurdity

It’s also absurd for “Jobs Killer” Brown and the Democrats and unions to believe the Amazon tax will bring in $200 million a year. It’ll easily kill that much more in tax revenue the Mom and Pops used to pay in income, sales and property taxes. But we probably won’t have real data on the cost until next year.

And keep this in mind the next time “Jobs Killer” Brown, the Democrats and the unions say we need higher taxes to help the poor. But they just killed the affiliate program money that private charities used to help the poor.

July 10, 2011

9 comments

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  1. EastBayLarry
    EastBayLarry 11 July, 2011, 06:31

    My 24 yo son has, (had?) a growing online business that depends almost entirely on affiliate commissions. My guess is this new law will keep him living with his parents for a few more years…

    Reply this comment
  2. LetThemEatCake
    LetThemEatCake 11 July, 2011, 09:26

    John,

    You usually have some excellent points.

    On this one, you’re appeal to emotion is understandable – but the points made just don’t jive with the facts.

    1) Amazon killed the affiliations – not the Legislature/ Gov.

    2) Amazon could easily collect the state sales tax due & pass it on – they chose not to. Why? Because they want to retain their no state sales tax collected “pricing advantage” over local businesses. Local businesses rent local real estate & employ locals who spend their income locally – & that’s a good thing.

    3) Affiliates can find other affiliations. Many who were diversified & didn’t rely completely on Amazon (one supplier is always a risky stragety) are doing business as usual, sans Amazon.

    4) If an affiliates business is based on the “saving” their customers get by avoiding the state sales tax due – the affiliate DESERVES to FAIL.

    Come on John, you’re a bright, usually very straight thinking guy – what’s your real agenda here – setting up a personal book deal?

    I’m not against someone making an “honest” buck ….

    And if it’s not an honest buck – it fits into the dishonest category?

    Reply this comment
  3. Jeannie
    Jeannie 11 July, 2011, 23:04

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    Dear Valued Customer,

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    Because you’re a valued customer, we are giving you a Club O Rewards membership for free (normal price = $19.95), and depositing $10 into your Club O Rewards account. No further action is required; this has already been applied to your account.

    As a Club O Member, you’ll receive:

    5% rewards on every purchase¹

    Free shipping¹ every day of the year

    Access to exclusive shopping events

    As always, I remain,

    Your humble servant,
    Patrick (ceo)

    PS If you’d like to learn more about this issue, please visit our Investor Relations page.

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