In an earlier post I shared a letter Amazon.com sent me last month indicating it will terminate its relationships with 10,000 affiliate businesses in California if tax policies are changed to require out-of-state retailers to collect California sales tax.
Since then there’s been a lot of media attention to Amazon’s announcement. But it’s important to keep in mind that this issue is much, much bigger than just one company.
Accordingly, I am contacting leading online retailers with California-based affiliates in an effort to quantify the potential impact their response to an affiliate nexus law could have on jobs and revenues.
Overstock.com is the most recent online retailer to inform me in writing that it will terminate its California affiliates should pending affiliate nexus tax legislation become law.
In his letter, Mark J. Griffin, general counsel for Overstock.com, writes that his company has terminated affiliate relationships "in every state where this legislation has passed" and "will do so in California."
According to Griffin, in 2009 Overstock terminated 3,200 California affiliates after the Legislature passed a similar measure. When the legislation was vetoed by the governor, Overstock attempted to reinstate those affiliates with marginal success. Griffin estimates the current number of Overstock affiliates in California is approximately 600.
Taxes have consequences. Too often we assume companies and individuals will keep acting the same after new tax laws are passed. That is simply false. Businesses change their behavior as tax laws change.
Supporters of an affiliate nexus tax claim that they want to create a level playing field for businesses that have retail presence in California and are required to collect sales tax. Unfortunately, none of the bills under consideration will level the playing field because out-of-state online retailers will simply modify their business model to avoid collecting California’s sales tax.
There are 25,000 Internet affiliates in California who are at risk of being wiped out by this attempted sales tax grab. This law will kill jobs and cost the state revenue as these individuals and businesses close up shop in California.