What California’s One Year Tax Reprieve Really Means For Affiliates and Amazon

For the first time since June, California affiliates can breathe a sigh of relief. In a move that recognizes the massive pushback against its version of the Amazon tax, California’s legislature passed and Governor Jerry Brown signed AB 155, putting many of the 25,000 affiliates back into business immediately. AB 155 repeals the law (ABX 1 28) signed by Brown in June that required online merchants to start collecting sales tax September 15, 2011.

While AB 155 doesn’t remove the possibility of online merchants collecting sales tax, it does put on hold the requirement to do so for one year until September 15, 2012. The law also acknowledges the efforts to create a nationwide standard for online sales tax collection.

Under the law, AB155, online companies will have until at least July 2012 to try to persuade Congress to create a national system for collecting the sales tax. If that doesn’t happen, California’s measure would take effect next September. But if Congress does act, the state would acquiesce to that law with collection beginning in January 2013.

Amazon, Legislature Compromise

Amazon reps worked closely with the legislature to craft a compromise. For their one year reprieve, Amazon also agreed:

… to build distribution centers in the state, creating at least 10,000 new full-time jobs and hiring 25,000 seasonal workers by the end of 2015. Amazon also has agreed to lobby for a new federal law that would authorize states to mandate tax collection by online retailers whether or not they had an in-state physical presence. The authorization would apply to all states that have simplified sales tax collection as part of the Streamlined Sales Tax Project, or SST.

In addition, Amazon will halt its efforts to put a referendum on the tax law on California’s 2012 ballot. It’s worth noting that Amazon’s plans will give it an in-state presence in California, making it unlikely that we’ll see another row over whether affiliates in California constitute nexus. For now, all appears well in the Golden State, but there’s still much that remains to be settled nationwide.

What About Other Merchants and Their Affiliates?

While Amazon is mentioned by name as a direct participant in this compromise legislation, according to proponents it’s by no means an exclusive solution for only Amazon. Tom White, the chief of staff for Assemblyman Charles Calderon who authored AB 155 addressed this issue directly:

“The deal was not Amazon specific. It was the law specific, and the implementation of the law affects everyone equally.”

The Performance Marketing Association, who put a lot of effort in tandem with Amazon into fighting AB 155 including backing the referendum, touts this move  by California as a victory for the entire affiliate industry.  However, that’s not how Overstock.com sees it, and they aren’t happy about the deal. In an interview with Dan Morain at the Sacramento Bee, Overstock’s CEO, Jonathan Johnson made clear his feelings about AB 155:

“States should not be legislating to benefit one company, and that is what California has done.” Johnson went on to add, “I’m guessing, but Amazon either already has nexus or is intending to create nexus in California. This deal is like taking off sleeves from their vest. They’re not giving up much.”

Johnson also indicated during the interview that Overstock plans to proceed with caution and has no desire to go down Amazon’s path of establishing nexus through a physical location in California.

It stands to be seen how many merchants, who terminated relationships with their affiliates due to AB 155, will reestablish those relationships in lieu of the ruling.

Action at National Level

While AB 155 doesn’t refer to it by name, the only active legislation that targets online sales tax at a federal level is the Main Street Fairness Act introduced by Senator Dick Durbin (not to be confused by the the Alliance of Main Street Fairness that Wal-Mart put together to attack Amazon). Despite being the target of online sales tax campaigns by brick-and-mortar retailers, Amazon has joined its past adversaries like Walmart and many of the main retail associations in support of the Act. eBay continues to oppose the Act, believing its enactment would hurt small business owners. Even if Amazon and other supporters put their full muscle behind lobbying for the Act, there are a few things standing in its way of getting passed before the deadline.

We’re only weeks away from entering an election year, when legislators become more worried about getting re-elected than in passing legislation. There’s also the reality that Congress can’t seem to accomplish even “simple” things like passing a budget to keep the government open for business. Add in the anti-tax fervor of Republicans and it seems a stretch to get something like the Act through Congress before next year’s deadline. Odds are high that online retailers doing business in California will be held to AB 155 a year from now. But it does make a difference that one of the biggest opponents now appears to be finding a way to do business in California without going to war against the state’s legislature and by connection its affiliates.

About Britt Raybould

Britt Raybould has a passion for telling stories and she specializes in helping companies figure out how to tell their own stories. Through her firm, Write Bold, she shows companies how storytelling can define them, both to their customers and within their industry. When she remembers to, Britt blogs on her personal sites at bold-words.com and brittraybould.com. You can find Britt on Twitter @britter.

Twitter: britter

8 Responses to What California’s One Year Tax Reprieve Really Means For Affiliates and Amazon

  1. Justin Dupre says:

    After 1 year those involved with affiliate marketing in the California area will be having a hard time.

    • Possibly, but not necessarily. The law is far from perfect and highlights the need to really solve the problem as opposed to dealing with it state by state. An affiliate in California shouldn’t be impacted negatively as opposed to the affiliate living just across the border in Nevada because of online sales tax. Now whether Congress will figure out a solution that makes everyone involved mostly happy is another issue.

  2. Raymond says:

    I’m a former Amazon Associate from California, and I am still waiting to find out how to be reinstated.  Amazon’s site has zero information.  At least yesterday there was still nothing.  I think even if we can be back to being Associates, Justin is right, we’ll just be dumped again.  Fortunately, Amazon isn’t the only fish in the sea.  …sure was a mice one, though

    • The key here is that Amazon is doing more than just not collecting sales tax for the year; it’s also announced plans to establish a physical presence in the state. Doing so seems to end the question of whether Amazon has nexus in California. If they follow through with their agreement to add facilities in California, they’ll have to collect sales tax even if AB 155 goes away. The affiliate issue becomes moot at that point.

  3. Rebecca Madigan says:

    Britt, thank you for pointing out the varying sides of this issue. Jonathon Johnson is absolutely right, this law/deal doesn’t compel any other out-of-state retailers to collect in 1 year’s time, when the law will presumably be reinstated.

    You used the word ‘tout’ to describe our response to the deal, and I argue that we aren’t exactly doing that. It’s a mixed blessing: we’re grateful for the 1 year reprieve, but that isn’t good enough – this law needs to be completely repealed.

    I agree that there is a slim chance Streamlined will be adopted by July 2012, but I believe Amazon is sincere in their efforts because they don’t want to be the only online retailer to be collecting sales tax. And they appear to be aligning with the big box retailers, which is necessary to make any progress at all. It is yet to be seen.

    It is also strange to me that there are hardly any experts or analysts speculating on what will happen. While there has been very little agreement in the past, there have certainly been no shortage of opinions. I think everyone is taking a ‘wait and see’ attitude.

    The PMA will be working very hard this next year to convince California legislators and the governor, that we need a full repeal or affiliate livelihoods are devastated again, even though Amazon will be collecting sales tax. They had Amazon in their sights all along; now that they’ve gotten their big game, hopefully we can convince them a full repeal is the best option.

    Rebecca Madigan
    Executive Director
    Performance Marketing Association

    • Given Amazon’s compromise, I do wonder about the possibility of a full repeal. Without Amazon adding its voice to the argument to do so, it seems like a very big challenge. Once a law is on the books, particularly when it comes to taxes, it seems incredibly difficult to get rid of it completely.

      I, too, am surprised at the lack of analysis so far. In some respects, I think it’s because Amazon may have surprised everyone. They’d already spent $5 million to get the referendum on the ballot and seemed to committed to a full repeal. The compromise struck me as Amazon taking a look at its longer-term options and opting for a cleaner, more predictable outcome, particularly given the legendary unpredictability of the California ballot.

  4. UPDATE: Yesterday (Oct 4, 2011) Amazon invited CA affiliates to “re-enroll” getting back their old Tracking IDs, and original Associates’ IDs (the ones they had before the termination in Jun).

  5. Dick Benda says:

    California is a miserable failure being run by miserable failures.  Corrupt and frustrated politicians ran out of money to buy votes with.  I think their little minds have been baked by ‘medical’ marijuana.