One of the keys to Amazon.com’s remarkable growth has been their “affiliate” program. They allow anyone to link to Amazon products and get a cut of every purchase. It’s a great program for Amazon, because it gives them a sales force with hundreds of thousands of members, none of whom need a salary. And it’s good for customers, too, since it gives people an incentive to write about the products they like, that others might like, too. In fact, some bloggers have been able to make a decent income off of Amazon affiliate payments. But all is not well for Amazon or Amazon’s affiliates.
Last week, Amazon cancelled its affiliates program in North Carolina. It’s a clash of titans: North Carolina collects $26.9 billion in taxes each year; Amazon.com sells $19.1 billion worth of more or less everything.
North Carolina is structuring the bill so that any retailer physically present in a state owes sales taxes on online purchases. And for the purposes of the bill, that physical presence rule covers the affiliates. Amazon weighed one the value of the affiliates against the cost of the taxes, and made the call.
Ironically, this tax increase might end up costing North Carolina tax money, overall. Amazon’s affiliates pay income taxes, including state income taxes, so by forcing them to stop getting checks from Amazon, the state is taking away its own revenue, too. Since an affiliate program can be run from anywhere, it’s likely that the revenue will just go to other states instead.
So what happens next? There are a few possibilities? North Carolina might back down on their tax plan — a victory for Amazon, since other states would then prefer not to raise their taxes. Amazon might change its mind and let North Carolina residents run affiliate programs, possibly with a lower payout — but only at the cost of losing face and seeing their taxes raised almost everywhere else. Or the status quo might be maintained: Amazon affiliates might be a program available in every state but one.