Massachusetts has become the latest state to introduce legislation that would allow it to join the Streamlined Sales and Use Tax Agreement (SSUTA), according to this article in the Patriot Ledger. At the same time, it’s also become the latest state to consider enacting affiliate nexus legislation (aka, the “Amazon tax”).
While we certainly understand why Massachusetts would enact affiliate nexus legislation—like most states, Massachusetts is experiencing a severe budget crisis, and in 2010 alone, $99.3 million in sales tax on e-commerce sales went uncollected—we believe that joining SSUTA is a better strategy.
We’re concerned that affiliate nexus legislation hurts small businesses that rely on the affiliate marketing income they receive from Amazon and other large online retailers. Rather than collect sales tax in states with affiliate nexus laws, Amazon and others have simply dropped their affiliate relationships in those states.
The article includes several quotes from Jonathan Johnson, president of Overstock.com, that confirm our fears:
Jonathan Johnson says Overstock has terminated its affiliate relationships in every state that has passed one of these bills because the company doesn’t want to be put in the position of being a tax collector. He says the bills do little to increase revenue for the states: Overstock, Amazon and others simply sever the ties with the local marketers and continue to avoid the sales tax.
Johnson says many of these affiliates pull up stakes and move to states that don’t have these new sales tax laws. As long as a few states don’t adopt the change, there will be tax havens for these marketers— and the online retailers that pay their commissions. He says there are at least 100 marketers in Massachusetts who would be affected if the legislature here passes RAM’s legislation. All of them, Johnson promises, would be cut off from Overstock if the bill becomes law and they stay here.
With Amazon and New York still embroiled in a lawsuit over the constitutionality of affiliate nexus laws and Amazon closing a warehouse in Texas rather than pay the sales taxes Texas says it owes, it’s become clear that a national solution is necessary. Federal legislation, in the form of the Main Street Fairness Act, would require all online retailers to collect sales tax, not just those with affiliate marketing relationships—something Amazon has said it would support.
The article also includes figures we haven’t seen before that are quite revealing:
Each year, the stakes in this battle get higher for the brick-and-mortar companies. Wells Fargo Securities estimated in a February report about Amazon that online commerce represents 8 percent of all U.S. retail sales, up from 2 percent a decade ago.That report clarified Amazon’s pricing power: Wells Fargo found that prices at Amazon, with the sales tax benefit, were 13 percent below Wal-Mart’s, 21 percent below Target’s and 23 percent below the prices at specialty retailers. The differential further widens once Amazon’s free shipping program is added to the equation. (emphasis added)