Amazon Can Do Without Affiliates
Legislators considering laws that seek to compel e-tailers to collect their state’s sale tax because they have local affiliates should probably start by asking themselves a question: Are those companies dependent on affiliate referrals or will they find a way to get by without them?
In states that have passed the so-called Amazon tax, the net result has been affiliates have been cut off while Jeff Bezos and company continue to do business. Other e-tailers, most notably Overstock.com, have done the same.
Even many who believe Amazon and others should collect state sales tax as a matter of fairness, have some issue with counting affiliates as part of another company’s local presence.
A RetailWire poll last month found that 56 percent disagreed strongly or somewhat with the contention that affiliates represented a local presence or nexus for Amazon and other e-tailers.
An article on The Motley Fool site yesterday concluded that legislation being passed to force Amazon and others to collect sales tax has proven to be a lose-lose for the states and affiliates.
"We’re at the point where Amazon may no longer need the Associates program, anyway. The success of its Prime loyalty membership plan is already keeping customers close," wrote the author Rick Munarriz. "There can’t be too many people out there who haven’t heard of Amazon.com, and if a website or blog is generating enough sales volume through referrals to Amazon’s product pages, there are alternatives."
Discussion Questions
Discussion Questions: How important are affiliate programs for most pure play e-tailers today? Does Amazon need its affiliates?
For some reason, a state like Connecticut just cannot get enough tax money to spend. They simply will not make government operate as efficiently as business. Amazon just dropped all their Connecticut affiliates due to the new tax law. The net effect is Connecticut will not be receiving the $18.8 million the government projected.
The simple fact is affiliates need Amazon and Amazon does not need affiliates. Affiliated sales and revenue to Amazon is likely a rounding error. Most affiliates are small businesses with a narrow target customer base. They need internet sales to be viable as they could not stay in business from local customers. The concept is a win-win for Amazon and their affiliates, but the cost of tax administration reduces Amazon’s competitive position. State governments should start by reading the interstate commerce laws before they make up their own rules.
No question Amazon could move away from its Affiliate program, but I doubt it’s ready to make that leap voluntarily. Affiliate programs build traffic and trafic is the life blood of e-commerce sites.
I think Amazon.com should collect state sales taxes, especially here in Florida, so the legislative body could find another way to screw it up. Education and paying teachers a fair salary might be a place to start. Oh wait, wasn’t the lottery supposed to do that?
All revenue sources are important to pure plays in varying degrees. And losing any channel can be the difference between being in the red or the black. The current (and probably future) government mentality is to find more revenue sources and they have identified this as one way to achieve this goal. The issue is, how much will it cost Amazon to collect these taxes and will it be a profitable endeavor for them if they do?
Amazon has affiliates to fill in the gaps in their product offerings and to provide an alternative source should a consumer want/need one. The affiliates benefit more than Amazon and were added to Amazon’s business model well after Amazon was a proven success. Amazon can get along with the affiliates!
However many of the affiliates cannot get along without Amazon as they rely on Amazon for all of their web/marketing services. So, when local politicians start trying to find ways to tax (so they can spend more) instead of trying to help local business grow, they end up cutting the local businesses’ throat.
Just last month the South Carolina legislature repealed a grant of tax incentives for Amazon to build a warehouse in Columbia, SC. Amazon considered their options and decided not to continue with their plans (after the site had been prepared and some construction had started). Net/net, South Carolina lost a new business and about 300 new jobs because some members of the legislature felt the state wasn’t getting enough in taxes. Now these sorry souls can explain to the citizens of the state how they are now getting NO taxes from Amazon and the 300 employees can remain on unemployment. South Carolina has one of the highest rates of unemployment in the nation and with this move they may have passed Michigan on their way to #1.
In short, Amazon does not need affiliates. Affiliates need Amazon, but all of us can do without Government!
Amazon is the proverbial 800 pound gorilla. They don’t need the affiliates but, as has been pointed out, the affiliates need the exposure that Amazon provides. Regarding the state taxes — I, like, many have already noted, believe no matter how much money many states collect, it will not be enough. Knowing that Amazon will pull out before it incurring the extra expense of collecting and remitting sales taxes, they continue to pass legislation that hurts their residents.
Yes, Amazon does not need its affiliates. However, their very presence does help Amazon. The real question is should states be trying to tax Internet sales when there is no precedent that this is being done in any other region, nor has it been done this way ever before. Just because a sale does not occur in a state, does not mean that the state has the right to determine how to tax that sale which occurs outside of the state. The true solution to this is to develop a federal tax system which offsets some of our income tax, and balances our revenue needs as a nation.