California Affiliate Nexus Tax will collect money, won’t help economy

Brown signs Affiliate Nexus Tax

Arnold screwed the housekeeper, Jerry screwed the entire state

I apologize for a long post, but this is something that can potentially shift an online deal to an online not-so-great-a-deal.

Recently, California governor Jerry Brown signed a measure into law that includes the affiliate nexus tax, which requires online stores (like Amazon) to collect sales tax if the affiliate is in the state.  In theory, this measure is expected to generate approximately $200 million for California.  In theory.

A measure to generate money is relatively easier to materialize into law, but in practical application does not always materialize to cash.  After all, one cannot expect politicians to understand the economics of the internet.

And here is when my governor asked the state to bend over.

Not long after Gov. Brown signed this measure into law, Amazon affiliates in California received the following email from Amazon:

Hello,

   For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers – including but not limited to those referred by California-based marketing affiliates like you – even if those retailers have no physical presence in the state.

   We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.

   As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective. We will send a follow-up notice to you confirming the termination date if the California law is enacted. In the event that the California law does not become effective before September 30, 2011, we withdraw this notice. As of the termination date, California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned on or before the termination date will be processed and paid in full in accordance with the regular payment schedule.

   You are receiving this email because our records indicate that you are a resident of California. If you are not currently a resident of California, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state in the near future please contact us for reinstatement into the Amazon Associates Program.

   To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect their ability to purchase from Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com.

   We have enjoyed working with you and other California-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to California residents. We are also working on alternative ways to help California residents monetize their websites and we will be sure to contact you when these become available.

Regards,

 The Amazon Associates Team

This means that I (a resident of California) will have to pay sales taxes on items purchased through online retailers (like Amazon and Endless) even if the store is located in Wyoming (which has no sales tax).  Is this fair?  I think not.

Unfortunately, the brains of Sacramento did not understand or realize the impact on small internet businesses, especially those who rely on Amazon and the likes to help with online sales, and especially those who receive affiliate commisions.

Affiliates in California, Colorado, Illinois, North Carolina, Rhode Island, and Connecticut are now affected by a similar affiliate nexus tax.  In response, I know of a few California businesses (or business branches in California) who decided to pack up and move elsewhere.

Therefore, my own governor effectively fired me, because I will not receive affiliate commissions from internet sales.  Remind me why I voted for you?!

And to you, Amazon dot com, I have been writing excellent reviews for items you sell on your site.  Should I still buy things from you?  Should I continue to link to your site from my blogs?  I sincerely hope you change your mind… and soon.

So, to Gov. Grown, if I may, I have two suggestions:  First, figure out who is mis-managing the state’s funds.  California population is approximately 40 million (2010 census).  With all the income and sales taxes from 40 million people, why is the state still in a $30 billion deficit?!  Okay, this first suggestion is too difficult for you.  Let’s try another one.

California consumes (on average) about 15 billion gallons of gasoline per year.  PER YEAR!  In March of 2011, for example, CA used 1.24 billion gallons of gas.   If I were to tax gasoline an additional 1.5 cents per gallon (or less 0.4% of the average gas price at $4 per gallon), I would generate the $200 million you are anticipating with the affiliate nexus tax.  Let’s take it a step further:  Increasing the gas tax an additional 20 cents per gallon (or an additional 5% of the average gas price) would generate almost $3 billion.  This will pay 10% of the state’s budget deficit!!!  Think about it, this will wipe out the state’s deficit in approximately ten years (if it is not mismanaged further)!!!

What do you think?

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About Ask Conrad
I am a University Professor. A Neuroscientist by trade, and a technophile/geek on the side. My work and research is heavily dependent on computers and state-of-the-art technology. I like Jazz and Bossa Nova. I play the piano, guitar, and ukulele.

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