Amazon to Colorado Associates: You’re Fired!

My email this morning was like a scene out of the The Apprentice.

I was fired… by Amazon.

Twitter was abuzz with all sorts of tweets about Ritter, Amazon, getting the rug pulled out.  Plenty of links to the email, but here is the highlight:

Dear Colorado-based Amazon Associate:

We are writing from the Amazon Associates Program to inform you that the Colorado government recently enacted a law to impose sales tax regulations on online retailers. The regulations are burdensome and no other state has similar rules. The new regulations do not require online retailers to collect sales tax. Instead, they are clearly intended to increase the compliance burden to a point where online retailers will be induced to “voluntarily” collect Colorado sales tax — a course we won’t take.

[snip...]

Your Associates account has been closed as of March 8, 2010, and we will no longer pay advertising fees for customers you refer to Amazon.com after that date.

Who’s Affected?

Fortunately, for me I’m small potatoes when it comes to affiliate sales. No $100k checks coming from them for sure. But overall the idea that my whole business model could be cut off at the knees by the whims of associates programs makes me rethink a lot of how, and where, I intend to do business.

A lot of the internet-based businesses these days rely on the affiliate model for product sales — from digital media to beverages. Amazon is just one of the better-known examples. But lately, choosing this route for an online business seems a bit fragile if it is your sole source of income, as this move by Amazon demonstrates.

It’s not only affiliates selling other people’s merchandise that is affected. Authors who are trying to regain some of the sales of their own works from their personal websites are going to be hit as well, people actually creating the content Amazon sells.

I expect that, like the O’Reilly commentary, the intent from Amazon is more to create action through their pissed-off affiliates, giving them leverage within the state which is their right for sure.

Give Them What They Want

If Amazon really wanted to screw Colorado, they could always just pay them how they pay their associates, in checks of $0.12 and $0.33 at a time. Really this would be all they would need to do to send the tax department running in fear.  I think it would be a sort of beautiful thing, but I am digressing.

In fact, Amazon payout for affiliates is pretty low unless you’re doing a huge volume or hosting an entire store of their most expensive products. So many of the commenters I’ve seen are, like myself, not exactly relying on their monthly Amazon checks to pay for the private jets, but I would love to hear from those individuals who really were earning their prime income from them.

Is anyone out there really hurting from this other than the obvious annoyance it creates? If so, please leave a comment.

Setting A New Trend?

The real trouble is what the legislation HB 10-1193 is really going to mean to anyone doing online business in Colorado.  Certainly Amazon won’t be the only affiliate program to pull all of their business out of the State.  Seems like the affect isn’t actually going to raise any revenue for Colorado if that was the intent.

The goal of taxing out-of-state online entities has been on many states’ radar for a long time and it could be a long battle until things get turned around, if they ever do. Or maybe Colorado will just be the first domino in the line to fall and, paired with the current economic woes, it might become the new model for all other states.  No doubt this will be drawn out and require a lot more time and money to move the needle either way. Truly a waste.

Unless Colorado decides to make the move to reverse the online tax, it may resemble the first line of the HOUSE BILL 10-1193 – An Act.

If you haven’t read it already, the full text of the bill can be found here.  It’s mercifully short.

Some Points To Consider

As I write this, of course, others have written their reactions.  Brad Feld, a VC located in Boulder raises some good points that may not be clear to someone not familiar with affiliate/associate programs, namely:

  • This won’t affect people buying merchandise from Amazon.  This affects Colorado-based, Colorado tax-paying businesses that worked through Amazon.
  • It makes Colorado look not only business and tech-unfriendly, but just kind of out-of-it regarding technology in general.

Is this really helping Colorado?

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