Yesterday evening @MattEnders, a North Carolina based colleague of mine, tweeted:
Having been one of the people to blog about the problem a week ago, I have gone online this moring to try to find the interview. Couldn’t find the recording itself, but got to this page on MSNBC.com:
The page links this this article on MyNC.com. where Enders’ anti-tax points are juxtaposed to those of Senator Hoyle, co-chair of the Senate Finance Committee and proponent of the North Carolina affiliate tax. The article says that the “sales tax from Amazon.com alone could run as much as $13 million a year”. It could but will it? The answer is negative. So Amazon will pull out. What about Overstock.com that the article also mentions? Based on the New York precedent, the answer is also negative.
The article ends with this paragraph:
Senator Hoyle said while he sympathizes with small business owners, he believes on-line retailers aren’t willing to give up the revenue, even if it means paying tax.
Recalling the New York State experience, hundreds of online retailers will “give up the revenue”, and in addition to Amazon and Overstock we’re also talking such major brands from the Internet Retailer’s Top 500 List as CaféPress.com, CSN Stores, Gaiam, Home Shopping Network, Jewelry Television, Karmaloop, Lamps Plus, Musician’s Friend, NetShops, Northern Tool + Equipment Co., OnlineShoes.com, Oriental Trading, ReStockIt.com, ShopNBC.com, ShoppersChoice.com; and this is only to mention the larger brands. See this thread for a fuller list of merchants that dropped affiliates after a similar law passed in the state of New York.
As someone has commented under the above-quoted article “7% of zero” is “still zero” and “that’s what NC will get in taxes”. I believe, the actual number is 4.5%, but that doesn’t change the main point of this statement. Such a law will not yield the desired results, but what it will definitely do is destroy thousands of smaller businesses along the way.
Here are also a couple of recently published must-reads on the issue:
* Local Business Owners Unite to Fight “Amazon” Tax in N.C.
* When the Levies Break
“Senator Hoyle said while he sympathizes with small business owners, he believes on-line retailers aren’t willing to give up the revenue, even if it means paying tax.”
The fundamental flaw with this thinking is that there is something that a specific state’s affiliates provide to retailers that is entirely unique and cannot be replicated elsewhere. Retailers will not be losing revenue in the quantities Senator Hoyle believes if they pull out of states. They will simply find other affiliates in affiliate friendly states that can replace the traffic and sales.
Exactly, Karen! North Carolina affiliates, on the other hand, will be having a much harder time finding suitable replacements for merchants that choose to discontinue their relationship with them. Amazon has already made it clear that they will be pulling the plug if the law is passed by the state. Depending on the niches an affiliate is focused on, this may be one extremely difficult merchant to find replacement for. Outcome? Less (or probably considerably less) affiliate commissions, and therefore less income tax paid to the state.
Completely agree. Why online retailers would even bother to deal with such greedy states? And lost income especially after the market multiplier would be very noticeable. As I wrote in a comment to your previous article, Senator Hoyle seems to try to rob the state budget of a lot of money. Bad idea and gross incompetence.
I think a large part of the problem is really in the absence of thorough understanding (both of what affiliate marketing is, how it functions, and what implications such a law could have for North Carolinians involved in this business). This tweet points to it too.
I’m just wondering who is determining where a website is “located”, given that it’s pretty much located in cyberspace. For many of us, isn’t it simply a matter of using a Mailboxes Etcetera address in another state, or even incorporating in another corporate-tax-friendly state such as Nevada? I just can’t quite figure out how a state can prove just where many internet businesses really are. Any thoughts on this? I’m a NC resident but I don’t have a problem moving my websites to a SC PMB! (I won’t be able to do this with my health insurance biz, since my contract with BCBSNC requires that I be a resident of NC – but I’m working on other web businesses).
Sharon,
I believe, it’s wherever the affiliate actually resides, gets his/her check, and pays his/her income tax. Incorporating in NV or any other sate that does not (yet?) have the tax is not a solution. You’d have to be a resident of that state.
Actually, that’s an interesting question. If NC affiliate incorporates in NV, Amazon has no way of knowing that the affiliate is actually in NC, but NC can later claim that Amazon broke their law by paying an affiliate in NC. As ridiculous as it sounds, the whole thing may be not local to greedy states, but may compromise the whole affiliate system, at least in the United States.
Oh, well, I guess affiliate advertising will be outsourced to India and China right after manufacturing and software development… I wonder what will they tax then? To get sales tax you need people in the state to have at least some money.
I have always been under the perception that all businesses had to pay taxes, this is saying that as long as my customers are in another state that I don’t have to pay taxes and there is nothing that the state or the IRS can do about it. Is this correct?
Now, if you trade online, and market through affiliates, in states that have such a tax (e.g.: State of New York), you do have to pay a tax (if/when your sales to New York State residents through affiliates located in the State of New York exceed a certain amount a year).
In your particular case, John, things are now looking very good. I see from your e-mail address that you’re located in Hawaii. Governor Lingle vetoed the tax in your state on July 1 2009. More here. Happy Independence Day!!
As an update North Carolina is out of the Overstock.com Program