Why Amazon Doesn’t Need To Terminate Affiliates Over Sales Tax Laws
I’ve been one of the unlucky Amazon affiliates to be dropped from the program because the state of Illinois passed a law that would require Amazon to collect taxes on all sales in the state.
The law says that the online seller must have a physical presence in the state, and Illinois considers affiliates to be a “physical presence.”
Affiliates in other states, such as California, New York, Arkansas, North Caroline, Hawaii, Colorado and others, have been dropped. Some web companies rely on Amazon’s affiliate program for a large chunk of their revenue. I know of at least one company in Illinois that relocated to Wisconsin to keep their affiliate status.
When Amazon recently released their quarterly earnings, CFO Tom Szkutak briefly addressed this issue:
Szkutak had little to say on collecting sales tax, noting that Aamzon supports a simplified federal sales tax solution and noted that it does collect sales tax in about half its businesses around the world, a statistic the e-tailer has pointed out before. Amazon had no comment on whether it expects to drop more affiliates in response to states imposing online sales tax collection. Third party sellers accounted for 36% of paid unit sales worldwide in the quarter.
The last sentence says a lot: “Third party sellers accounted for 36% of paid unit sales worldwide in the quarter.” That seems to be a fairly large chunk of revenue, if you ask me.
A Simple Solution For All
I’m no financial guru, so maybe I’m being overly optimistic here, but it might be in everyone’s best interest if Amazon just kept affiliates in states that have an online sales tax.
Amazon’s prices are already much lower than the prices of brick-and-mortar retail stores anyway. And when you factor in the free shipping you get on $25 or more, the sales tax wouldn’t make that big of a dent in their business.
Further, if affiliates are bringing in 36% of worldwide sales through affiliates, then Amazon is shooting themselves in the foot by dropping them in states with an online sales tax law.
I rely heavily on affiliate recommendations when buying ebooks and other products. I’m sure others do as well. Getting a recommendation for a specific product is much more likely to result in a sale than from someone blindly surfing Amazon’s website, with just a basic idea of what they’re looking for.
Amazon Can’t Afford To Keep Dropping Affiliates
With a lot of states facing a budget crisis, many are looking to generate revenue wherever they can. E-commerce is an easy target. Amazon is an even easier target because they are the largest online retailer.
I’m predicting more states are going to enact online sales tax laws. Can Amazon keep dropping affiliates in each state with such laws? In theory they can. But it might cost them dearly in the long run.
Do you think Amazon should stop dropping affiliates, even if it means charging sales tax?
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