(disclaimer – I am a happy Amazon Affiliate, and I’m glad I don’t live in North Carolina!)
A while back, a ruling came about that set a precedent for states insisting online retailers to charge state sales tax for online sales to residents in their state.
In a nutshell, if the business in question does not have operations in the challenging state, they don’t need to charge sales tax.
(In most states, the customer is expected to report and pay the sales tax on online purchases via their annual state tax return – don’t you? Obviously, having the retailer collect the tax is far more ‘efficient’).
The 800 lb gorilla in this argument is Amazon.com, the largest online retailer, which obviously prefers not to charge its customers sales tax.
Recently, NY passed a law insisting Amazon charge NY sales tax, arguing that Amazon has an affiliate program which effectively places Amazon sales operations in every state in the union.
A little background…
Amazon’s affiliate program – ‘Amazon Associates’ – enables bloggers and other websites to link to products within Amazon’s site. If a customer purchases something after clicking the link, the website (the ‘associate’), gets a commission from Amazon.
I use this on StationStops all the time. I like to write a lot of gadget reviews on the site, and have no problem linking out to Amazon from them. I buy a ton of stuff from Amazon every year, and love their service, selection, and pricing. Not only that, but after reading my review of a product, there is no other place I would recommend to readers for more information on that product than its product page on Amazon.
It doesn’t get me rich, but Amazon sends me a little gift card for the amount each month and its a great little treat for my work.
So, NY state insisted Amazon charge NY state sales tax for this reason, and Amazon begrudgingly did it.
Why? It was NY state, an important and large population for US online sales – and affiliate sales as well.
Unfortunately, North Carolina didn’t catch that last part.
North Carolina recently insisted Amazon charge NC sales tax as well, under the same argument that there were bloggers in NC actively ‘affiliating’ for Amazon.
Same threat, different response.
Amazon, rather than cow-towing to North Carolina’s demands, simply said goodbye to ALL of its North Carolina affiliates, which would nullify the legal argument.
Oops.
This is not good for North Carolina. Amazon Affiliates is the one of the largest affiliate programs there is, and Amazon easily injects millions of dollars of affiliate commissions – and supports actual jobs within the state for people and websites who rely on Amazon Affiliates for part or all of their online revenue generation.
Those millions in taxable revenue are now gone.
Those jobs are now gone.
Amazon just took its ball and went home.
The net effect is as if North Carolina simply stepped up to a thriving multi-million dollar business employing hundreds of people within its borders, and drop-kicked it to Georgia.
Want more chilling effect?
Given this experience – how interested would you, as an online publisher, be in setting up (or continuing) a business in North Carolina, knowing you are not eligible to utilize one of the most lucrative online revenue tools in that state?
No thanks!
North Carolina now has a reputation for having a contemptuous relationship with online retailers in general. That doesn’t bode well for setting up shop there either.
As a NH native, I’ve never appreciated sales tax anyway.
Federal income tax? Sure. The feds provide a lot of services I enjoy every day.
State Income tax? Sure, I get state services as well.
But sales tax?
That one has never made any sense to me.
Sales tax is just gratuitous.
I mean, you taxed the money I earned.
Then you taxed the money I spent.
That’s just double-dipping.
If I were to choose one or the other though, I would choose sales tax, since that would absolve the need for almost all residents to file a state tax return.
On Leo Laporte’s TwiT podcast last night, someone threw out a figure that 55% of all money Americans earn is eventually paid out in taxes – income, sales, property, specialty (e.g. cigarettes and gasoline, luxury), or state fees (like car registration etc).
That’s insane, but sounds about right.
This whole story reminds me of whats going on in a lot of other states regarding taxes right now.
For example, Long Island has been grumbling about seceding from New York, because Long Island pays about $3B more in taxes then it gets from NY state in services.
In California, a lot of businesses have sought to leave the oppressive taxes and requirements of California employers behind, by moving to the business-friendly neighboring Nevada.
But my favorite example is Maryland, which couldn’t balance its budget, so they decided to soak their wealthiest residents with an (up to) %6.25 tax rate.
The result? ONE THIRD of all of the millionaires in Maryland moved, directly resulting in $100M LESS in collected taxes.
The moral of the story?
States, please remember – anyone who makes enough money to pay a lot of taxes in your state can *easily* afford a moving truck.
5 responses so far ↓
1 PuReWebDev // Jun 30, 2009 at 6:54 pm
I think it serves NC right for trying to be greedy. My particular business relies on the success of the Amazon Associates program, so we’re hoping that the other states have learned a good lesson from this.
2 NC Affiliate // Jun 30, 2009 at 8:55 pm
PuReWebDev:
Excuse me, but what about us, the affiliates in NC who are now out of business? You said your business relies on the Amazon Associates program. Guess what? So do the businesses of people in NC.
The people that are suffering are the affiliates. I hope your state doesn’t pass similar legislation but for now, I’m struggling for my very livelihood. Comments like yours are cruel and uncaring.
3 Chris (Admin) // Jun 30, 2009 at 9:09 pm
NC Affiliate: All of us other affiliates sympathize greatly with you, and I understand how comments like PureWebDevs can come off callous..
However, we are all also consumers, so we don’t like to see Amazon get bullied on sales tax.
In the end, we are just glad to see Amazon stand up for themselves and set a precedent for other states.
Now it is up to you to contact your state representatives and bitch that their bullying cost you your livelihood, and tell them to get on one knee and ask Amazon for their affiliates back or you’ll boot them next election.
While your at it, convince them to do damage control by implementing some ecommerce-friendly legislation so NC doesn’t hear the giant sucking sound of whatever ecommerce business they have leaving the state.
Articles like mine, and comments like PureWebDevs are meant to shame North Carolina in that they have screwed their constituency by getting greedy, and help force them to backtrack.
But they will only respond to their voters – YOU have to call them and tell them what to do next.
I’m very, very sorry that you are in that position, though, but glad you are speaking up and making your voice heard.
4 Thor Schrock // Jul 10, 2010 at 2:58 pm
Your criticism of the sales tax would be legitimate if all citizens paid income taxes. The use of a progressive tax code means that nearly half of people don’t pay income taxes at all.
This means that people like you and I that do pay taxes have to pay more than our share.
North Carolina really messed up here, and other states – especially smaller states – should take notice.
Imagine what a state like Nebraska could accomplish if their legislature passed a law stating there would NEVER be an online sales tax? Imagine the jobs and economic growth that could be generated as operations like Amazon flocked to the state.
5 Maria Romana // Jul 13, 2010 at 10:48 pm
As usual, legislators show their woeful lack of foresight and just plain knowledge of simple finance. Taxation NEVER improves the economy! It only hurts. The more we pay in taxes for services that we may or may not use or want, and which are never provided optimally priced (is any government agency efficiently run?), the less we have to voluntarily spend on the things we do want to purchase from private, optimized businesses. It bears repeating: increasing taxation is _always_ harmful to the economy. And I am a resident of NC!
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