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.

Angel Djambazov is the editor of ReveNews and the owner of Custom Tailored Marketing.

Comments

  • Guest

    Angel, what do you say to my theory that Amazon is simply using this “tax battle” as a cover to phase out her affiliate program altogether? Perhaps in the mid-’90s, when Amazon was new, she needed to enlist webmasters (as bloggers were then known) to link to her, but today Amazon has such mindshare, SEO, and Google ad presence that she shows up high in search results for just about anything.

    Affiliate sales require a commission payout of about 4%, which is perilously close to Amazon’s profit margin on most products. By simply phasing out her affiliate program, wouldn’t Amazon simply be increasing their profit margin at a web site with which 90% of Americans are already familiar?

    • http://twitter.com/evanjacobs Evan Jacobs

      The power of Amazon’s affiliate program is grossly underestimated by most observers. Not only does the affiliate program drive ~50% of referral traffic, it is also one of the primary drivers of SEO juice.

      If Amazon no longer valued it’s affiliate program it wouldn’t need to find an excuse  like this tax issue to phase it out. It would simply end it.

      • Jankowski

        “50% of referral traffic” is misleading because a percentage of those people were heading to Amazon anyway, and referral traffic does not equal sales. If you want to prove that the affiliate program makes money, you need to show the money it makes. I’m sure Amazon crunched those numbers before pulling out of CA.

        • Michael Hunt

          referral traffic is a big reason that Amazon shows up so high in search results.  The equations that all the major search engines use take into account the number of hits a site gets from different sites.  Without the affiliate program, Amazon would slowly begin to fall down the search result pages, which would cripple the company very quickly

        • Michael Hunt

          referral traffic is a big reason that Amazon shows up so high in search results.  The equations that all the major search engines use take into account the number of hits a site gets from different sites.  Without the affiliate program, Amazon would slowly begin to fall down the search result pages, which would cripple the company very quickly

  • http://www.revenews.com Angel Djambazov

    It is true Amazon has made many internal changes that make
    their “associates” program one of the least friendly in the industry
    to professional affiliates.
    -Amazon has one of the few programs whose credit for a commission is session
    only instead of the 30 day industry average.
    -Search affiliates were essentially cut out when in 2009 Amazon disallowed paid
    search as a promotional method.

    That being said, if Amazon truly wanted to phase out its affiliate program it
    could do so at any time. Despite its value the affiliate channel is one of many
    marketing options available to advertisers. There are legitimate business
    reasons to not launch or abandon an affiliate program.

    Amazon using this tax battle as a cover to run their affiliate program into the
    ground seems farfetched. Especially when you consider the amount of money they
    are spending in litigation in New York alone.

  • Cole M. Potter

    I am glad to see that AMAZON Stood up to the wackos in California who only want to TAX everything they can find instead of cutting spending!  Good for Amazon! Kudoos! More businesses are moving out of CA because it is so UNFRIENDLY to businesses and now moving to TEXAS!

    • Silicon valley R&D

      Having trouble hearing you over the sounds of all the billion dollar IPO’s.

    • IRia

      Right.  This is not about California.  Read the article.  It’s happening all over.

  • http://www.barbaraburns.com Barbara Burns

    I’ve wondered for ages why Amazon did not rally all the Mommy Bloggers & assorted other Bloggers in all the states instead of just banishing them from their program.

    Because Amazon keeps dropping all their affiliates, I’ve decided not to buy from them – I am not a major buyer so I won’t be missed … but it is the point … they took sides against regular people like me instead of mobilizing us to fight these laws in our states. I personally shop online for things I cannot buy locally, not to avoid sales taxes.

    BTW … I’ve never bought a refrigerator online … :) … and I am not planning to do so any time soon either!!!

    • http://www.revenews.com Angel Djambazov

      Thanks for taking the time to reply Barbara. I think many
      affiliates share your sentiment. Amazon could have rallied groups within the
      industry, including Mommy Bloggers, to their cause. Instead they wasted the opportunity
      on their end to create a coalition.

      I think most consumers would agree with your point that access to products not
      available locally is far more of a motivating factor in shopping online than
      tax avoidance.

  • Anonymous

    Should be interesting to see how that all turns out.

    http://www.anon-web-toolz.tk

  • Yockmister

    LOL  The Amazon lawyers are not marketing gurus nor advertisers of the cause … but they do know the law very well, and affiliate nexus is unconstitutional.

  • Yockmister

    Amazon losing the battle?  They know full well that only Congress can address the issue.  Schoolyard bully?  You bet.  Just look at what happened here in S.C.  A promise of 2 warehouses + 2K jobs, in exchange for HUGE tax breaks (20 years) AND nexus exemption for 5 years.  It was an all or nothing deal. Legislators calling for a ‘level playing field’?  Not here,  Those same lawmakers effectively threw S.C. online retail and B&Ms under the bus.  Worse, the deal does little to increase direct revenue from Amazon into State coffers.

  • http://profiles.google.com/colinscroggins Colin Scroggins

    As a longtime Amazon customer, I support them in standing up to this highway robbery by state legislatures looking to shore up their blown budgets. I will continue to buy from Amazon because they have better availability, shipping practices, customer service, and prices than anybody else.

  • http://www.planningjargon.com PJ

    “Instead, Bezos and Amazon abruptly and coldly cut ties with their affiliates.” – I was under the impression that Amazon believed foolhardily that its affiliates would organize themselves into arms. Guess that didn’t happen…

    • http://www.revenews.com Angel Djambazov

      Affiliates did organize under the Performance Marketing
      Association. However that particular group is mostly affiliate or service
      provider funded. The major networks only provide nominal support. Amazon itself
      which has far greater resources, both in terms of lobbying money and in terms
      of PR teams that could help put a “face” on affiliates, has failed to
      build a coalition.

      Wal-Mart’s Main Street strategy may be disingenuous but it is working very well.
       

  • http://twitter.com/kegill Kathy E Gill

    Thanks for the info about Wal-Mart. I had no idea. You inspired this: http://themoderatevoice.com/115367/astroturf-alert-guess-who-is-leading-the-battle-to-force-amazon-pay-sales-taxes/

    Folks: (1) it’s collecting taxes, not paying taxes; (2) affiliates do more than refer people to Amazon stock — they also have their own storefronts (some are used book resellers, others are new product sellers of all types); (3) Amazon, bless their hearts, has an awful public relations/public affairs track record — this is the latest example. (written with sadness as I own stock)

  • Swbrown18

    I work in an independent business in AZ, and Amazon certainly does have a physical presence in our state, and still don’t collect sales tax. This is Main Street versus greed!
     

    • http://www.revenews.com Angel Djambazov

      Not a 100% true SWB…

      Amazon LLC itself does not collect sales tax in Arizona because it does not have a physical presence in the state. However Amazon does collect sales tax for certain partners depending upon whether they have a physical presence in the state. In Arizona’s case Amazon collects tax for any products coming from these partners:

      Electronic Arts, IncTarget.comHachette Digital, IncHarper Collins Publishers, LLCPenguin Group (USA) IncSimon & Schuster Digital Sales, Inc.MacmillanDow Jones & Company, Inc 

      Curious to know what business you are in?

  • Kratos1256

    How does the tax hurt the various affiliates? One reason Amazon cut ties was because if it kept them in place, then this would tell a bunch of other states that they too could implement such a tax on the company. But how does having Amazon pay tax to the states where it has affiliates located, hurt those affiliates themselves?

    • http://www.revenews.com Angel Djambazov

      The way this hurts California affiliates, as well as
      affiliates in states like Illinois, is that etailers like Amazon, Overstock,
      New Egg, end up severing their ties with the affiliates. Depending on the extent
      their business relies on revenue from such advertisers affiliates can really be
      hurt by such measures.

      For example, the affiliate site FatWallet estimated an annual revenue loss of
      $6 million dollars due to lost affiliate marketing agreements because of the
      Illinois decision to pass the nexus tax. FatWallet ended up moving its
      operations to a neighboring state rather than incur the loss:
      http://www.revenews.com/revenews/fatwallets-move-heralds-another-loss-for-illinois/

      Which means for Illinois they lost tax revenue from a large local business as
      well as failing to gain revenue from Amazon or Overstock since they simply cut
      loose affiliates in that state.

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