[markwelch]

In one of the North Carolina threads, someone wrote > "[I] wonder if Amazon is yet again, bullying us to get us to act on their behalf." <

My conclusion: Amazon isn't bullying its web-publisher "associates," nor is Amazon bluffing.

I think it's worthwhile to discuss this more generally.

In each state which has brought an "Amazon Tax" for a vote, Amazon has written letters to legislators, announcing that it will terminate its advertising relationships with web publishers in any state that enacts this unconstitutional law.

Last week, Amazon sent emails to all of its North Carolina and Hawaii affiliates, informing them that if the "Amazon Tax" language is enacted in either state, Amazon would terminate its advertising relationships with all web publishers in the state. Late this week, Amazon actually terminated all of its North Carolina affiliates, who will no longer receive commissions on or after June 29.

The lobbyists for the American Booksellers' Association, who wrote the "Amazon Tax" language and are pushing for its passage, have consistently pointed out that when New York enacted the law, Amazon immediately began collecting sales tax for New York, while simultaneously litigating the validity of the law. The ABA lobbyists have pointed out that even if the law is ruled unconstitutional, states would still get to keep all taxes collected under the laws, so it really doesn't matter that it's unconstitutional. The ABA lobbyists have also urged legislators to dismiss Amazon's "threats."

So, what would you do, if you were Amazon?

To evaluate what Amazon should do, I need to make some assumptions (always dangerous, but sometimes necessary).

• I'm going to assume that Amazon has analyzed the impact of its "switch" last summer to start collecting sales tax in New York, on its overall sales and conversion rates. Since the economy has sunk sharply, I also assume that Amazon's analysis compares changes in New York to other large states where Amazon hasn't collected sales tax (e.g. California, Texas, Illinois), and to the states where Amazon has "always" collected sales tax.
• I'm going to assume that Amazon has concluded that sales have been lost in New York due to the sales tax, and that the lost sales are significant.
• I'm going to assume that Amazon has also examined the sales brought by its New York "associates," and determined that they are significant. (I also assume that Amazon has analyzed and estimated the percentage of "associate-driven sales" which would be retained or recaptured through other means, if the New York "associates" were terminated.)
• I'm going to assume that Amazon has weighed these two factors and determined that the profit from sales lost due to sales-tax collection are greater than the profits earned from sales brought by its New York "associates" (and certainly greater than the amount of profit which Amazon expects to actually lose following the termination of "associates" in each state).
• I also assume that Amazon has calculated the "cascade effect" if more states enact Amazon Taxes. In other words, its actions cannot just focus on a single state, but on all 45 U.S. states that might enact "Amazon Taxes." It has certainly recognized that by acceding to the New York law, Amazon validated the ABA's assertion that by enacting the "Amazon Tax," states would guarantee huge additional sales-tax collections, which they could keep even if the law is later ruled unconstitutional.
• I assume that Amazon has tried to estimate the impact on other state legislatures if it terminates its "associates" in the next state(s) which enact an "Amazon Tax." (In other words, I assume that Amazon has concluded that if it starts collecting sales taxes in the next state to enact an "Amazon Tax," then at least a dozen states will enact "Amazon Taxes" this year, and a dozen more next year. And I assume that Amazon has concluded that if it terminates its "associate program" in the next state(s) to enact "Amazon Taxes," then few [if any] other states would enact similar laws.)
• I also assume that when evaluating the likelihood of each state enacting an "Amazon Tax," Amazon probably believes that state legislators will not consider the lost income to in-state web publishers as a significant factor against the law. I actually assume that Amazon has calculated the commissions which would end for each state's affiliates, and determined that this amount is significantly less than the amount of sales taxes it would collect from that state's residents (if this assumption is wrong, I don't understand why Amazon hasn't shared the data.)
• I assume that Amazon believes, as I do, that these laws will almost certainly be "eventually" ruled unconstitutional and invalidated on appeal, and that following a final ruling it will cease collecting sales tax in "Amazon Tax" states. I also assume that Amazon believes, as I do, that any appellate ruling will be appealed again, and then again to the U.S. Supreme Court, and that this process will take years.
• Finally, I assume that Amazon has evaluated its technical ability and the costs to modify its e-commerce and accounting systems in order to compute, collect, report, and remit sales taxes to each state where an "Amazon tax" is pending. I assume that because of Amazon's size and sales volume in each state, these costs are perceived as "nominal" by Amazon (even if the same costs might bankrupt a medium or small e-commerce firm). I also assume that Amazon has concluded that if "Amazon Taxes" are enacted in more states, it will have a competitive advantage over other out-of-state e-commerce firms (which would face much higher technical-implementation and compliance costs, as a percentage of sales). I assume that Amazon concluded that its competitive advantage is not significant, compared to other financial factors.

I really don't think Amazon had much choice here -- if I'm right that its likely lost profits due to collecting sales tax would be greater than the profits it will lose by terminating its advertising relationships with web publishers, in states where an "Amazon Tax" is collected.

I think that Amazon's decision to include language in its termination letters, advising web publishers to contact their legislators, was probably intended more to shift blame and anger than to actually inspire effective action.

My conclusion: Amazon isn't bullying its web-publisher "associates," nor is Amazon bluffing.

[Zeus]

They aren't. I agree.

[carly50]

I am not all the way on board with this. What if all the states enacted this? Amazon would go belly up. I still think they are using us to get some action. They might not care about me or you as an affiliate. I get that. The fact that they are asking us to contact our legislators is proof. Rosalind Gardner's assistant Joel, wrote me that he too thinks Amazon is trying to light a fire within it's affiliates. (from the first letter they sent out) I think they are replicating their actions with the second letter.

I am sure Amazon has looked at this from every angle, yet NC affiliates are paying the price. I want to know who is cutting their ties after this is all said and done? I am not ready to throw in the towel just yet but Amazon has left a very bad taste in my mouth, that's for sure!

[markwelch]

carly50 wrote: > "What if all the states enacted this? Amazon would go belly up." <

Huh? What percentage of Amazon's sales do you believe are driven by web publishers through the Associates Program? (Assume, for now, that only commission-based advertising is affected, as New York interpreted the law.)

It might have been as high as 20% or 30%, at some time, but I suspect that now it's less than 10% of Amazon's sales, and I wouldn't be surprised if the "Associates Program" brings less than 5% of Amazon's sales. Even if 10 or 20 states enact "Amazon Taxes," that's still less than half of the U.S. (and it's reasonable to assume that Amazon's best-performing web publishers would seriously consider moving entirely to another state to retain their earnings).

The most important factor is the one we don't know: what percentage of Amazon's customers would choose NOT to buy from Amazon if Amazon collected sales tax? If it's 10%, then Amazon is better off terminating its commission-based advertising in those states, than collecting sales tax.

Sure, Amazon (like CJ and GAN) are urging web publishers to speak out, because they hope that somehow the legislatures might respond to their consituents and abandon the "Amazon Tax." But I don't think that's a reasonable expectation, nor a primary motivation, today. (Of course, I've been wrong quite often lately.)

[affninja]

Mark's right. Amazon is stuck between a rock and a hard place. Neither situation --collecting sales tax, or terminating associates -- is good for their business. But it makes sense to conclude they've calculated it out and chosen the path that's "less bad."

Paraphrasing a source inside Amazon yesterday:

North Carolina affiliates became something like a sacrificial lamb. We had to follow through on our promise to show the government of NC and more importantly, the government of CA, that we're not bluffing. We're all hoping this action makes them realize how ineffective these laws will be in raising state revenue, and how truly harmful they will be to state small businesses. Plus, if they pass, I'm out of a job too.

What's the latest from Sacramento?

[net4biz]

The sooner Amazon dies the better ... they never cared anything about their affiliates from pretty close to day one. One million affiliates sending them ONE visitor a day and they wanted more ... but they did just about everything possible to shoot themselves
in the foot. Affiliates could not buy and get a commission, low to no cookie days, you can't use the Amazon name in your ads if you are selling Amazon 'stuff.' All sorts of happy horsepucky.

It's no different than in 2002 or so when their stock cratered, except this time they
are the lunch. When the dust settles, they will go the way of the gooney bird. People
will still buy stuff off Amazon, but it will be impossible for Amazon to make a profit doing
what they do and how they do it. Lots of things will change.

Couldn't happen to a more deserving guy than Jeff. It's time to relegate him to the "WAS" category.

Seriously, I wonder how much money they have lost on selling Michael Jackson stuff ... The sales have been HUGE ... but is there any profit in it, given the enourmous logistics
that are involved.

[carly50]

My bust. I don't think the company would go belly up, I meant to say that the affiliate program, which does drive sales you gotta admit, would go belly up. I know the company wouldn't but would it? (eventually....?) Makes one wonder....

[Lanadili]

I wouldn't say Amazon is "bullying" their affiliates, but I would say this is a great way to lite a fire under our butts in order for us to also join in the fight and do whatever we can to try and stop this.

The motto: "Together we stand, divided we fall" comes to mind here.

It's one thing if merchants complain about the tax to the legislators because they'll just write it off saying they just don't want to hand over any extra money. It's totally different when you have affiliates who also write in to their legislators to let them know "Hey, WE are the ones who are really affected here." This helps the battle TREMENDOUSLY, and Amazon knows this. I believe this is why Amazon has decided to let their affiliates know ahead of time (so we can do something about it) that if this bill passes, everyone is screwed.

[Kevin]

I believe that Amazon thought they were going to win their fight in NY. The NY tax caught a lot of folks off guard, and Amazon realized they couldn't terminate affiliates here because it was too late based on the language of the law.

They learned a valuable lesson, and are taking appropriate steps elsewhere.

It's a sad truth, and they might still be too late some places, but it's the truth nonetheless.

[emuflies]

Originally Posted by Kevin

I believe that Amazon thought they were going to win their fight in NY. The NY tax caught a lot of folks off guard, and Amazon realized they couldn't terminate affiliates here because it was too late based on the language of the law.

Could you clarify why it was "too late to terminate " NY affiliates if Amazon chose to at the time of the law getting enacted (like Overstock.com etc. did) ?

They probably made a conscious decision between
1) collecting NY sales tax and keeping NY associates (not realizing the domino effect on other states)
2) terminating NY affiliates and drawing a line in the sand

[markwelch]

I assume that what Kevin means by "too late to terminate" New York affiliates was that by the time Amazon realized the law had been added into an emergency budget bill and enacted with immediate effect, Amazon may have already fulfilled (on and after the law's effective date) more than $10,000 worth of orders for New York residents who were referred by New York web publishers participating in the Amazon Associates Program. If so, then Amazon would need to collect sales tax (until at least a year after terminating New York web publishers from the "Associates Program" -- and Amazon probably expected the law to be invalidated by a judge long before then).

By inserting the "Amazon Tax" language at the last-minute into budget bills (some retroactive), state legislators are playing a "gotcha" game, which explains why Amazon decided to terminate North Carolina affiliates before the bill is signed into law. As I mentioned in another discussion thread, it's quite likely that the "Amazon Tax" language will be discovered in one or more states' budget bills only after enactment!

[mellie]

Originally Posted by emuflies

Could you clarify why it was "too late to terminate " NY affiliates if Amazon chose to at the time of the law getting enacted (like Overstock.com etc. did) ?

They probably made a conscious decision between
1) collecting NY sales tax and keeping NY associates (not realizing the domino effect on other states)
2) terminating NY affiliates and drawing a line in the sand

Kevin is right, Amazon had no choice when it came to NY affiliates.

A short and simplified answer is this. The law was signed and in effect on an earlier date (April 23 I believe but would have to check) Nexus standards were established at that time. Merchants had a grace period to register, June 1, and start collecting remitting the sales tax.

Merchants who terminated affiliates after April date did so in an attempt to remove the nexus but nexus was already established so taxes should have been collected and are still due. The removal of affiliates does not immediately remove a nexus. It takes a lot longer to remove a nexus once established. It was not as simple as kicking us out on May 30.

Several of us discussed this many times last year. Amazon was kind of stuck with us. Their visibilty makes it impossible to sneak by.

[Chuck Hamrick]

Any word that Overstock or EBay is following suit in states like NC?

[Rich Owings]

Yeah, I'm wondering about eBay too.

[Kevin]

Thanks Mark and Mellie for clarifying my statement.