Guest commentary: You may be right Jeff Bezos, but no one sympathizes. Yes, the U.S. Supreme Court made it clear in its 1992 ruling of Quill Corp. v. North Dakota that Amazon.com and other online retailers shouldn’t have to pay taxes in states where they don’t have physical presences.
Yet, even with law on your side, your school-yard bully tactics and perpetual game of chicken with state legislatures has cost you victories in key states. More importantly, it has cost you a lot of good will.
Dirty Realities of the Nexus Fight
There are two misconceptions in this tax fight. First, this is not a battle between Main Street and Amazon. It may be framed that way by lobbyists, but it is far from the truth.
This is a battle of attrition mainly between Amazon and Wal-Mart (and other players like Overstock and Target) who are happy to watch each other bleed financial resources over legal posturing.
The Alliance for Main Street Fairness, which was so successful in bringing about the victory in Illinois against Amazon, was founded by Wal-Mart and other big-box retailers. Soak that in for a moment. Wal-Mart backing something with the words “mainstreet fairness.” That should either make you laugh or sick to your stomach.
Second, the idea that states which passed a nexus tax, specifically targeting Amazon, have improved their fiscal tax revenue is grievously erroneous. Illinois, North Carolina, Rhode Island, Arkansas, Connecticut, and most recently California will not earn one dime from the nexus tax.
Why? Because Amazon, Overstock, and a multitude of other retailers have simply terminated their relationships with affiliates in those states.
Don’t believe that’s these states aren’t benefitting? Just ask Rhode Island. It’s Department of Revenue publicly admitted that it collected absolutely no revenue from the tax. Politicians appear to be backing these bills for no other reason than to offer a solution. Of course, the promises of Wal-Mart’s lobby doesn’t hurt.
The Game of Chicken
This tactic has been sporadically effective for Amazon. Essentially, it threatens state legislators that it will sever ties and leave the state if they pass a nexus tax. Then, without budging ground or offering any real alternative, Amazon waits for them to blink.
So far only Colorado has blinked. But the state then quickly muddled the whole thing. Instead of passing an Amazon tax, they passed a hybrid so misguided that it caused the Direct Marketing Association to file a lawsuit against the state and a district court to block the tax and repeal the effort. Of course, Amazon still cut ties with affiliates in the state.
Enemy of My Enemy
War makes strange bedfellows. But Amazon is apparently unfamiliar with this adage. It has been unable to put together a cohesive front. Affiliate networks and other retailers like Overstock are the ones most impacted by the nexus tax and should be Amazon’s greatest allies in this battle.
But retailers are often competing for the same customer dollars, and the affiliate networks have clients on both sides of the nexus issue. Given that, they are effectively fighting with one hand tied behind their back.
Lack of a Human Face
Nobody roots for the bully. Wal-Mart understands this perfectly. (Hence the reason for the Mainstreet Fairness group). In Illinois, Wal-Mart even brought forth the owner of an appliance store to help make their point. Think about it: When was the last time you bought a refrigerator online? But there was the appliance salesman talking about how online sites like Amazon were hurting his business, apparently oblivious to Wal-Mart’s impact on his bottom line.
Amazon has put no human face on its efforts. They’ve completely missed the opportunity to highlight hundreds of small entrepreneurs, bloggers and business owners who earn revenue from Amazon links. They could use these people as examples of who will be hurt in this fight.
I once spoke about the nexus tax at the Gnomedex conference in Seattle. Almost every attendee was a blogger or social media type. No one considered themselves affiliate marketers, in part because the term comes with baggage.
When I asked them how many were affiliates, few raised their hands. When I asked how many used Amazon “associate” links (as Amazon terms affiliate links) in book or product reviews, everyone did. These were all people with a voice, all whom could be hurt by a nexus tax. But none knew about the issue.
Amazon’s fast growth can be attributed in part to the vast participation in its affiliate program. Amazon links are second only to Google Adsense links on publishers’ sites.
Yet, Amazon has not reached out to its base.
Publishers in states like California, Minnesota, Texas, Colorado, and Mississippi who do consider themselves affiliates have shown up by the dozens to testify how their businesses would be ravaged by a nexus tax.
Amazon has not put them under its wing and has failed to identify with the thousands of publishers enrolled in its associates program. Doing so would have made it harder for legislators to approve such a tax and would have helped in the court of public opinion.
Instead, Bezos and Amazon abruptly and coldly cut ties with their affiliates. This has created such negative feelings that rivals like Barnes & Noble have started wooing discarded Amazon affiliates.
The tax issue will either resolve itself in the form of a national movement like the Streamlined Sales Tax Project. Or, certain states will start to position themselves as “Internet-friendly” tax havens.
But regardless of what happens with the tax, Amazon has squandered so much and gained so little in return.