Wednesday, March 10, 2010

Stop the 'Amazon Tax!'

Please visit this article's new home at AriArmstrong.com. Thank you!

13 comments:

  1. Nice Article, GO AMAZON!!!

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  2. Thank you! Thank you, thank you, thank you for this post! You've pointed out everything I wanted to say but was too angry to try and get across.

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  3. I agree that the bill is bad, but I disagree with the idea that Amazon was compelled to "fire" its affiliates as a defensive action.

    I don't see anything in the bill that distinguishes out-of-state companies that have in-state affiliates from those that don't. The original bill did, but the final bill does not.

    The bill may treat out-of-state sellers badly, but it treats them the same, whether they have affiliates or not. Even the letter from Amazon does not claim that the bill targets affiliates. They say they don't like the bill and that as a result they are terminating affiliates, but they never say that the law targets their affiliate program.

    As much as I dislike the bill, I will not hold Amazon blameless for using its affiliates as cannon fodder in a game of hardball. I don't believe they needed to fire affiliates for defensive reasons.

    If the law in question targeted affiliates, as it has elsewhere, I would understand and even support Amazon's actions. As bad as this bill is, it does not target affiliates, and for Amazon to sidestep that fact is at best disingenuous.

    (Disclosure: IANAL, I was an associate, and I have published books that are sold by Amazon).

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  4. Richard, you fundamentally misunderstand what's going on here. (Did you actually read my article before posting your comment?)

    You are simply wrong when you claim, "The bill may treat out-of-state sellers badly, but it treats them the same, whether they have affiliates or not."

    Colorado has no authority to tax companies in other states, unless those companies have a relevant "presence" in Colorado. What is it do you think that gives Amazon such a "presence" in Colorado? It is precisely the Associates program. Without that program, Colorado has no legal authority to force Amazon to submit to the tax bureaucracy. And that is why Amazon cut off Associates.

    Therefore, your indictment of Amazon is wholly unjust. Amazon is not "using its affiliates as cannon fodder." Amazon is instead doing the only thing in its power to stay out from under the Colorado tax bureaucracy.

    The fact that Colorado's law does not place the tax paperwork directly on the heads of Associates does not improve matters for Amazon (and indeed makes things worse for Amazon).

    It is frankly a little disappointing, Richard, that your comments are completely nonresponsive to the contents of my article, which took me quite a while to compose. I suggest you learn what you're talking about before unjustly accusing Amazon.

    Thanks, -Ari

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  5. Martin L. BuchananMarch 12, 2010 at 12:11 AM

    Disclosure: I sell a book through Amazon so may have a minor economic interest.

    Bad blogging is ranting; mediocre blogging is unsupported opinion; excellent blogging is modern-day journalism, with faster turn around and more in-depth details than dead-tree publications.

    This is excellent blogging.

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  6. Ari,

    I read your article and the bill, and I stand by my statements.

    First, to answer your question, I do not think Amazon has a presence in Colorado and I did not say that it does. I said the bill treats companies the same whether they have affiliates or not, and I stand by that statement.

    Here's my analysis:

    The bill defines "retailer" as someone "doing business in this state" and then defines "doing business in this state" as selling, leasing, or delivering tangible personal property by retail sale (39-26-102. Definitions). There's more verbiage, but I think anyone reading the bill would agree that Amazon fits their description of "retailer" with or without its affiliates.

    The bill then goes on to talk about requirements on "retailers" for collecting sales tax. In the original bill, there is a section that tries to create a nexus if you have an affiliate. That section was replaced in the final bill with a section that tries to create a nexus if your company is a "component member" of a "controlled group of corporations," which if you look at the references to US tax law is tax-speak for companies that have shared or subsidiary ownership, but does not include affiliates.

    Finally, the bill goes on to require a "retailer" who does not collect sales tax to provide a bunch of information to purchasers and the state. We've already seen that their definition of "retailer" includes Amazon, with or without affiliates, so that requirement does not change if Amazon fires its affiliates.

    I think most of the confusion about affiliates comes from the summary of the bill, which says the following: "Commencing March 1, 2010, section 1 articulates a presumption that any out-of-state retailer that has a referral relationship with an affiliate has an obligation to collect sales tax."

    Pretty clear wording, but, right above that summary is a statement that the summary does not reflect amendments, and in this case, that very clear statement is rendered inaccurate by the amendments. Why they didn't update the summary is a mystery to me, but given the note, I'm guessing their procedure is to wait until the bill is passed, so they don't keep changing the summary with every amendment.

    With the amendments, I see nothing in the bill that targets affiliate programs. If you see something I missed, please point it out.

    The bottom line as I see it is that the state decided not to try and create a nexus based on affiliate programs. Instead they tried to make reporting for out-of-state "retailers" so onerous that they would choose to collect taxes rather than report taxes.

    Again, I don't like the bill any more than you do, but I'd rather attack it on what it says rather than what we think it says (or what Amazon would like us to think it says).

    Hope that helps.

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  7. Richard,

    I appreciate your continued efforts to sort out the complications of Colorado's Amazon Tax.

    However, you continue to miss the boat. If Amazon does not have a relevant "presence in Colorado," then Colorado has no authority to subject Amazon to Colorado's tax laws. That is the end of the story, and nothing else the bill may or may not say alters that basic fact. Colorado could just as well try to impose an income tax on citizens of Louisiana, or a sales tax on goods sold in Montana.

    The federal government, not the Colorado legislature, is charged with regulating interstate commerce.

    I am currently working on a more detailed evaluation of the language of the bill and of the IRS codes it invokes.

    Thanks, -Ari

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  8. Ari,

    Thanks for your quick response.

    I don't disagree with your point about Amazon's presence and Colorado's authority (though I wouldn't want to guess what a court would say about either:).

    All I was saying was that *this* bill does not target affiliate programs; it targets any company that sells into Colorado.

    The implication, then, is that Amazon's termination of affiliates doesn't change its legal position in the state; they still need to fight this out in the courts. Firing the affiliates may be a good political move, but I don't see how it makes any legal difference wrt this particular bill.

    I look forward to reading your detailed evaluation of the bill and IRS codes.

    Best,
    Richard

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  9. Richard,

    If federal courts rule that Amazon is subject to Colorado tax laws only if Amazon maintains its Associates program, then obviously Amazon has helped itself by dropping the Associates.

    Furthermore, it is to Amazon's advantage to drop the Associates right now, rather than wait for a potential court battle to play itself out. To see why, note what Amazon says about its New York court battle, which remains in appeals:

    "Effective June 1, 2008, Amazon.com LLC will begin collecting sales tax on items shipped to destinations within the State of New York as New York has enacted a new law requiring out-of-state sellers to collect and remit sales tax based on advertising. Amazon has filed a lawsuit challenging the constitutionality of this provision. However, as required by the law, we must still begin collecting New York sales tax beginning on that date."

    In other words, Amazon wants to make sure that it does not have to comply with Colorado's onerous tax provisions while a potential court battle plays out.

    Thanks, -Ari

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  10. Here's the link to my new article about the affiliate amendment:
    http://bit.ly/bZQTvX

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  11. You should know about Georgism

    From Wikipedia. Georgism, named after Henry George (1839-1897), is a philosophy and economic ideology that holds that everyone owns what they create, but that everything found in nature, most importantly land, belongs equally to all of humanity. The Georgist philosophy is usually associated with the idea of a single tax on the value of land. Georgists argue that a tax on land value is efficient, fair and equitable, and will accrue sufficient revenue so that other taxes (which are less fair and efficient, also Internet sale tax too ) can be reduced or eliminated.

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  12. I do know about Georgism, and it's complete bunk. Every single thing we create involves the use of natural resources. If you build a car, that involves metals mined from the earth, plastics made of material taken from the earth, etc. Even our bodies themselves are composed of materials from the earth. So Georgism implies total collectivism. But there is simply no reason to think that virgin land -- say, the moon -- belongs to mankind as a whole. Locke was right. Property properly belongs to the person who first utilizes it.

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  13. It seems as though the tax man needs to have there noses in everything. It's Colorado today, tomorrow New York and eventually this will go global. Great article none the less.

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