Connecticut is wrong to pursue Amazon for past uncollected sales tax

October 10, 2011
Hartford, CT capitol building

Hartford, CT capitol building

According to an AP article, Connecticut claims that owes the state for past uncollected sales tax:

Connecticut plans to press Amazon for the taxes the state believes it should have collected at least during the month or so when the new law was in effect and Amazon still had affiliations with websites in Connecticut through its Amazon Associates Program. Amazon severed those ties in June. . . .

Connecticut plans to evaluate some other connections Amazon has with people in the state and start building a case that Sullivan predicted will ultimately be decided in court. (emphasis added)

But unless we’re missing something, the dates just don’t add up.

  • Governor Malloy signed the new budget bill on May 8.
  • On June 10, Amazon sent letters to its associates in Connecticut terminating its contracts with them.
  • The so-called Amazon Tax, as part of the state budget, went into effect on July 1.

What are we missing here? Is the month-long overlap that Connecticut claims actually between the date the budget bill was signed and the date Amazon terminated its Connecticut associates program?

Amazon ended its associates program twenty days before the law went into effect. So Amazon did not have associates in the state when the law went into effect, and therefore it doesn’t owe the state for any uncollected sales tax that would have been due under the law.

Connecticut officials are suggesting that they will ultimately end up bringing a lawsuit against Amazon. Unless they have another argument to offer, we question their standing to bring such a claim. There’s just no way that Amazon had in-state associates when the law went into effect.

Amazon and retailers agree with California to push for federal legislation resolution (Main Street Fairness Act)

September 8, 2011

As reported moments ago by the Sacramento Bee (read here), Amazon and other national retailers have agreed to suspend their referendum effort in exchange for a concerted effort to resolve this issue (of internet sales tax collection) by July 2012.

We recommend reading the article directly, as the SacBee has this issue well covered.

9/9/2011 UPDATECalifornia legislature approves amended AB 155, repeals ABX1 28! AMZN to reinstate CA affiliates! All to work to pass the Main Street Fairness Act!

California’s latest twist in sales tax battle will hurt local retailers in favor of a certain online auction site

August 27, 2011
Los Angeles Times

Los Angeles Times: New online sales tax legislation

According to a Los Angeles Times article, the next move in the battle over California’s online sales tax collection law comes from supporters:

A coalition of giant, brick-and-mortar retailers and their legislative allies have come up with a new strategy to try to head off’s referendum to overturn the state’s new Internet sales tax law.

On Thursday, lawmakers amended a bill in the Senate Appropriations Committee and sent it to the full Senate for a vote next week. If the bill gains approval from the Senate, the state Assembly and the governor, its passage would have the effect of nullifying Amazon’s current drive to qualify a referendum for the June 2012 budget.

To recap the situation thus far: A law requiring online retailers with California affiliates to collect sales tax went into effect on July 1. Amazon immediately dropped its affiliates in California, and on July 8 the company filed a petition to put a referendum to repeal the law on the ballot, for California voters to decide on. The petition was approved, and since then Amazon has been campaigning to collect the 505,000 signatures needed to put the referendum on the ballot.

And  now it seems that supporters of California’s legislation have made the latest move. According to the LA Times, “Passage of a new law would supersede the old law, making the referendum invalid.”

Apparently the new bill raises the small seller exception—where the previous law exempted online retailers with less than $500,000 in annual remote sales from collecting sales tax, the new one raises that threshold to $1 million. That change was enough to get a certain online auction company to drop its opposition to the law, so legislators are more optimistic about its chances.

Believe it our not, this latest escalation of the small seller exception is as dramatic as it is surprising. The economic impact of this change will be significant, however the lawmakers in Sacramento seem to have glossed over that fact:

…add an urgency clause, and increase the small business exemption from $500,000 to $1 million. Staff notes that BOE does not track micro-level data on affiliates that may be subject to the exemption, so the fiscal impact related to increasing the threshold in indeterminable. (emphasis added)

Are they serious? They think it’s indeterminable? Affiliates have nothing to do with the revenue collection, it’s the retailers that collect, not the affiliates. This statement is pure misdirection. I expect Ms. Betty Yee and quite a few analysts at the Board of Equalization would dispute that they could not calculate the loss of revenue, and the legislature should immediately review some of their recent findings on the subject (like this and this).

This amendment blatantly discriminates against small local main street retailers who are not afforded any such exception—proper tax policy should treat all retailers and taxpayers equally. Surely there are a few local retailers who would love to not have to collect the sales tax on their first $1 million in sales. For a bit of perspective on this matter, let’s listen to Amazon’s own Mr. Paul Misener in his testimony before the United States House of Representatives in 2006

To be sure, no one expects truly small businesses to do the work of sales tax collection alone but that doesn’t mean they shouldn’t be required to do it at all. By analogy we require small business persons to sign their legal documents in ink but we don’t expect them to make their own ballpoint pens. will offer sales tax collection services to our small seller customers. I am sure that our on-line competitors also can and will. Of course, this discussion so far as been limited to small businesses conducting interstate sales. What about small main street businesses selling locally? Even after a decade of e-commerce, as Brian [Bieron of eBay] has pointed out, still over 90 percent of retail sales are off line.

Small main street businesses already collect sales tax and, thus, have both the administrative burden of tax collection and the higher prices caused by it. If out of state small businesses would not have to collect, then their main street brethren would be saddled with a competitive disadvantage both as to burden and price. Hopefully policy makers never would conclude that this disparity would be fair to main street small businesses. (emphasis added)

We couldn’t agree more.

We continue to believe that all this contentiousness is unnecessary. Energy would be better spent on federal legislation on online sales tax collection—which Amazon and lawmakers support. It solves many other problems, too. To quote from ourselves:

As states such as California and Illinois enact affiliate nexus legislation (so-called Amazon tax laws) to attempt to collect sales tax due on online purchases, small businesses across the country are being caught in the crossfire. Affiliate marketers are forced to either find entirely new sources of revenue or flee to another state. Meanwhile, online retailers that rely on affiliate marketing are forced to either eliminate their established sales and marketing teams or come into compliance with the new laws.

The better solution is the anticipated Main Street Fairness Act, which incorporates the Streamlined Sales and Use Tax Agreement (SSUTA). SSUTA streamlines and simplifies state sales tax regulations, making it easy for retailers to collect sales tax for multiple states. SSUTA is the cooperative effort of 44 states (including California and Illinois), businesses, political leaders, and industry associations. States that adopt SSUTA have committed to make sales tax collection easier for all retailers, online and offline, large and small.

We hope that the Main Street Fairness Act will soon make these state battles moot. It’s the best solution for all.

California Attorney General says… OK

July 19, 2011

California’s Attorney General has allowed Amazon’s proposed referendum to repeal ABX1 28.

The title:


Wow, this should be interesting…

New York Times: Amazon takes on California

July 14, 2011
The New York Times: Amazon Takes on California

The New York Times: Amazon Takes on California

The New York Times just published an article covering the AMZN proposed referendum to repeal ABX1 28.

One part, which we are now investigating, really caught our eye:

Amazon said this week that it would push a voter initiative in California that could eliminate sales tax for virtual sellers with only a modest physical presence in the state. (emphasis added)

We hope that the voters of California don’t get tricked into thinking the referendum would actually repeal the sales tax itself. Regardless of the outcome of this proposed referendum, if a “virtual seller” refuses to collect sales tax, consumers will still owe it—just as they have in California since 1935 (no, that is not a typo).

All-in-all, it is a well-written and thorough piece, but we wish the writers had pointed out the fact that with federal legislation, such as the much anticipated Main Street Fairness Act (MSFA), states could legitimately repeal affiliate nexus laws (no voter referendum necessary) while simultaneously generating significantly more revenue. This is because the MSFA would authorize states (those that have simplified their sales tax laws by adopting SSUTA guidelines) to compel remote retailers to collect sales tax at the time of the transaction. This would allow states to collect the approximately $23 billion in sales tax that goes uncollected each year (nearly $1.7 billion in California alone).

We will let you know what we learn about the “eliminate sales tax” quote.

Amazon files for referendum on California affiliate nexus legislation

July 12, 2011

ANOTHER UPDATE (7/12/2011 @ 2 PM EDT): Internet Retailer just published a detailed article about this too.

UPDATE (7/11/2011 @ 10 PM EDT): The Financial Times and The Wall Street Journal just ran an article about this too.

Last Friday, July 8, Amazon filed a petition for a referendum on California’s recently passed affiliate nexus legislation, which requires online companies with California affiliates to collect California sales tax. The referendum would put the decision on whether to enact the legislation in the hands of California voters.

This AP article has more, although details are yet to come.

To be clear: The referendum would not give voters the opportunity to determine whether or not sales tax is due on online purchases. Sales tax has always been due on online purchases and it still is; the California legislation simply changed how it is collected. Before, consumers were responsible for sending the tax due directly to the state. With the legislation, online retailers themselves—at least, those with California affiliates—are responsible for collecting and remitting the tax.

As we’ve always said, federal legislation is the better solution—it allows states to collect existing sales tax without hurting affiliates or targeting online retailers that use affiliates. When Congress finally acts to pass federal legislation, state legislation won’t be necessary, and online retailers will be free to resume their affiliate relationships without fear of a discriminatory tax collection law singling them out.

Amazon supports federal legislation, as do we. We hope that it will be enacted soon, ending the feud over California’s legislation.

SFGate: The next step for California

July 5, 2011

SFGate: What's next for California sales tax collection

A new column on, the San Francisco Chronicle website, speculates on what’s next for online retailers and state legislators now that California has passed affiliate nexus legislation.

The author points out that neither Amazon nor Overstock—both of which immediately dropped their California affiliates upon the bill’s passage—are currently collecting California sales tax, even though the new law has gone into effect. How will the state respond? According to Betty Yee, a member of California’s Board of Equalization:

“So, we’ll bill them at the end of this quarter, based on estimates either they provide or we come up from other data sources. Then, if they don’t come forward and pay, we’ll consider other courses of action.”

It seems pretty unlikely that they’ll “come forward and pay,” and according to the article, litigation is likely the next step. In fact, Amazon is currently in the middle of a lawsuit challenging New York’s affiliate nexus law—which has, thus far, been upheld.

One could argue, of course, that because they’ve dropped their California affiliates, Amazon and Overstock no longer have nexus in the state. However, Amazon, at least, has subsidiaries with offices in the state, such as Lab126 in Cupertino, which designed the Kindle. Under the California law, those subsidiary locations may be sufficient to establish nexus for Amazon—a matter that now seems destined to be determined by the courts.

Unless, that is, federal legislation renders the question moot. Our favorite part of the column is the section with the header, “Over to you, D.C.” We’ve long argued that federal legislation is the best solution for both states and retailers, and we’re happy to see that on that, at least, everyone seems to agree:

If there’s one thing both sides of the online tax fight appear to agree on, it’s the need for the feds to step in.

“What we’re trying to do is to get Washington to clarify nexus, and revise the Quill decision,” said [Bill] Dombrowski, [president of the California Retailers Association] who is also a board member of the National Retail Federation.

“The right way to fix this is with federal legislation,” Amazon CEO Jeff Bezos said in an interview with Consumer Reports in May. Bezos said his company has long favored an across-the-board “streamlined sales tax initiative,” an idea offered up a decade ago by the National Governors Association, and which 24 states (not, as yet, including California or New York) have signed on to.

The column discusses the Main Street Fairness Act specifically, although we think the description is a bit misleading:

Under Durbin’s bill, “all businesses must collect state sales tax on all purchases, whether or not the business has a physical presence in that state … but based on where the buyer is located,” he said, announcing the proposed legislation earlier this year.

What that brief description doesn’t mention:

  1. The bill doesn’t allow every state to require out-of-state businesses to collect sales tax—just those states that have made it easy for businesses to collect their applicable sales tax by adopting the Streamlined Sales and Use Tax Agreement (SSUTA) guidelines.
  2. The bill lets states decide on their own whether to join SSUTA in order to gain the authority to compel out-of-state retailers to collect their sales tax.

But that aside, the column offers a good overview of the current situation in both California and the nation at large. We can’t include here all the details it includes on the response to California’s new law, so we suggest you go read the entire thing yourself.

THUD! Did Congress hear that?

June 30, 2011

Yesterday California passed legislation requiring any out-of-state retailer with an affiliate in California (or warehouse/drop-shipper, or any other physical or economic presence)  to collect California’s sales tax. It’s the seventh state to enact affiliate nexus legislation, after New York, North Carolina, Rhode Island, Connecticut, Illinois, and Arkansas.

This is a signficant move, but unfortunately it’s the wrong one. As a result of this legislation, affiliates face either losing their income or moving out of the state. In fact, in less than 24 hours, Amazon and Overstock have already ended their affiliate programs in California, just as they did in the other states when they passed similar legislation.

A better option is still available for California by simply joining the Streamlined Sales and Use Tax Agreement and urging Congress to enact federal legislation such as the much anticipated the Main Street Fairness Act (or MSFA). Enactment of the MSFA will enable the states to repeal affiliate nexus laws, and in so doing, restore a significant revenue source for many of their smallest businesses, while also gaining the legitimate authority to collect significantly more revenue.

So, the good news is that as the eighth largest economy in the world, California attracts a lot of attention. There’s a reason for the saying “As goes California, so goes the nation.” Congress cannot possibly ignore the message that California is sending: states want and need federal legislation allowing them to require out-of-state retailers to collect sales tax.

But if anyone in Congress is still wondering if this is matters in their district, here is a small portion of the local news websites  that have published the news that Amazon has dropped its California affiliates (not including California sites):

We are confident that with California’s bold statement, Congress will acknowledge the unmistakable THUD heard ’round the country yesterday. California’s legislation is just the latest plea from states that federal legislation regarding online sales tax collection is absolutely necessary. It’s time for Congress to act.

Amazon ends affiliate relationships in Connecticut

June 10, 2011
Stamford Advocate

Stamford Advocate: Amazon ending business relations in Connecticut

An article in the Stamford Advocate (CT) reveals that Amazon has joined Overstock in ending its affiliate relationships in Connecticut in response to a Connecticut law requiring online retailers with affiliates in the state to collect sales tax.

The move wasn’t unexpected—Amazon has ended its affiliate program in nearly every state with an affiliate nexus law, and Overstock did the same over two weeks ago. But we are sad to see it happen. Many small businesses rely on income from affiliate programs:

A [Stamford Advocate] reader, Jim Cameron, sells books through his website “CT Yankee Books”, forwarded the email [from Amazon terminating his affiliate contract] to Hearst Connecticut Newspapers.

Cameron said in his email, “For a few years now I’ve had a hobby of collecting and re-selling old books online. Today, I was put out of business.”

It’s particularly unfortunate because there is a much better solution for states, affiliates, and retailers: federal legislation in the form of the Main Street Fairness Act.

The Main Street Fairness Act would let states require online retailers to collect sales tax, as long as the state has adopted sales tax simplification measures that make it easy for retailers to collect sales tax in multiple states. It would solve the problem of uncollected sales tax for states without targeting retailers that use affiliate programs—so those affiliate programs would remain in place.

Only federal legislation will give states another solution and put an end to affiliate nexus legislation. We hope Congress is listening.

Texas affiliate nexus law awaits governor’s signature

May 13, 2011

According to the AP, the Texas legislature has passed an affiliate nexus law that now just needs the governor’s signature to become law.

We’ve written extensively on affiliate nexus laws and why federal legislation is a better solution here. Nonetheless, we’re not surprised to hear that Texas has become (or is about to become) the latest state to pass affiliate nexus laws.

In the absence of federal legislation like the Main Street Fairness Act, which would allow states to require all online retailers to collect sales tax, states are limited in their actions by the Supreme Court decision that says retailers must collect sales tax only for states where they have a physical presence.

States are seeing their sales tax revenue decline dramatically as more and more shopping migrates online, and it couldn’t happen at a worse time—the recession has already caused record budget shortfalls. As states are forced to cut more and more services, they are willing to try anything to bring back some of that lost sales tax revenue to fund police, schools, libraries, and more. Unfortunately, affiliate nexus laws aren’t very effective (for all the reasons enumerated here).

These are becoming scary times to be an internet marketing affiliate. We hope that the Main Street Fairness Act will be soon introduced and passed in Congress, ending the need for such devastating legislation (for affiliates). But until it is, we expect to see more and more states follow in the footsteps New York, North Carolina, Rhode Island, Illinois, Arkansas, Connecticut, and now Texas.

Kaumaha news from Hawaii

May 3, 2011
Kaumaha news from Hawaii

Kaumaha news from Hawaii

We’ve just learned that the word for “sad” in Hawaiian is “kaumaha.”

We learned this word because we just found out that two sales tax–related bills, one to join the Streamlined Sales and Use Tax Agreement (SSUTA) and one to enact an affiliate nexus law, have died in committee in Hawaii.

Although we are glad that in-state affiliates won’t be hurt by an affiliate nexus law, as has happened in so many other states, it’s too bad that the bill to join SSUTA also failed to make it out of conference committee.

SSUTA’s purpose is to make it easy for multistate retailers to collect sales tax. There’s just one sales tax return form for every SSUTA member state, and SSUTA’s guidelines simplify sales tax regulations so that a retailer knows item are taxed the same way in every SSUTA state.

Twenty-four states are currently members of SSUTA. For multistate retailers that sell in Hawaii, it’s too bad that Hawaii won’t have a chance be the twenty-fifth (until next year).

What affiliates can do to fight affiliate nexus legislation (the “Amazon tax”)

April 29, 2011

We were interested to read this article, written for an audience of affiliates, that offers advice for writing to legislators to advocate against affiliate nexus laws.

We certainly understand why affiliates would want to try to stop affiliate nexus laws—they threaten their livelihood—and we agree, affiliate nexus laws are not a good solution. (We’ll suggest a better one in a moment.) But the problem they are intended to solve is real: Shoppers are not paying the sales tax they owe on their online purchases, and online retailers don’t have to collect that sales tax at the point of sale. It’s causing serious problems for the states and communities that rely on sales tax revenue to fund police, parks, libraries, road maintenance, and more. It’s also hurting local retailers, which cannot compete with online retailers that don’t have to collect sales tax. These local retailers are seeing their customers browse their shelves and talk to their clerks only to say “Thanks, I’ll go order it online.”

Given these facts, plus the severe budget shortfalls facing states, we think some kind of legislation on online sales tax is inevitable. Right now, the only option getting much media attention is “affiliate nexus” or “Amazon tax” legislation—although it’s far from ideal, it is a creative attempt to allow them recoup some of the $10 billion in sales tax on online purchases that goes uncollected each year. Five states have now adopted affiliate nexus legislation (and quite a few are considering it). Without action from Congress, states are limited by two Supreme Court rulings, from 1967 and 1992, that say out-of-state retailers are required to collect sales tax only for states where they have a physical presence. All states can do under this limitation is try to change what counts as a “physical presence,” which is why they’ve targeted affiliates—they can make the argument that the presence of affiliates in a state counts as a physical presence, and therefore retailers with affiliates in the state must collect sales tax.

So by now, hopefully you are asking yourself: “Is affiliate nexus legislation the only way states can solve this problem?” Let us borrow from the immortal words of Yoda to answer that:

No. There is another.

Despite all the media attention around affiliate nexus legislation, 44 states have been working on a different solution since 2000: it’s called the Streamlined Sales and Use Tax Agreement, and it solves the internet sales tax issue cleanly and easily. In fact, 24 states have already adopted the simplification procedures of the agreement!

All Congress has to do now is pass a law enabling states (that have implemented the simplification measures of SSUTA) to require online retailers to collect sales tax, and suddenly affiliate nexus legislation becomes unnecessary. And at the same time, all those vital services that sales tax revenue helps pay for, such as police, schools, and libraries, will have much more funding, and online retailers will no longer have an unfair advantage over local retailers.

The Main Street Fairness Act is a bill that would do this, and it’s expected to be introduced in Congress soon.

If affiliates want to help put a stop to affiliate nexus legislation, we suggest they write to their legislators in support of the Main Street Fairness Act. If some kind of legislation is inevitable—we think it is, and the recent popularity of affiliate nexus laws bears witness to states’ urgent desire to pass some kind of law on the issue—then it’s best to pass a law, like the Main Street Fairness Act, that doesn’t hurt affiliates by singling out retailers that have affiliate relationships.

Forbes article offers great summary of online sales tax history

April 15, 2011


This Forbes column by Robert W. Wood presents a terrific summary of the history of online sales tax and the issues involved. We particularly like how it defines and illustrates “use tax,” but the entire article—which is brief—deserves a read.

The only thing we’d also have liked to see is a definition of affiliate nexus legislation. Although Wood does mention Amazon at the end, he doesn’t explain that states are increasingly passing laws that say having affiliate marketers in a state is enough to create nexus there, and that this is what Amazon objects to.

We’re looking forward to the day when there is federal legislation allowing states to require online retailers to collect sales tax—something Amazon has said it would not object to, since it treats all retailers the sames, whether they are online or off and whether or not they use affiliate marketers.

Storefront Backtalk asks: “Where are the consumer advocates?”

April 11, 2011

This post in the StorefrontBacktalk blog ponders why there have been no consumer advocacy groups fighting against affiliate nexus laws. The answer, though, is contained in the post:

Rightly or wrongly (OK, it’s wrongly), consumers in those states have been avoiding paying state sales tax.

It would seem to me that a consumer advocacy group would be hard-pressed to make a pitch that says, in effect, “don’t take away a citizen’s right to evade taxes.”

Instead, the debate continues to focus on the issue of fairness—whether it is fair that only bricks-and-mortar retailers collect the tax, and whether it is fair to ask online retailers to calculate and collect the tax.

Today large online retailers easily manage millions of items for sale at any given moment, and even the smallest online retailer can calculate accurate shipping rates to every corner of the country in a blink of an eye. It is no longer too difficult to keep track of a few thousand tax jurisdictions.

What’s more, comprehensive sales tax management services are available—for free—making it even easier to calculate sales tax online. TaxCloud calculates the sales tax due for any purchase anywhere in the country. It is certified to comply with the Streamlined Sales and Use Tax Agreement (SSUTA) and can therefore also prepare, file, and remit sales tax for states that are members of SSUTA. The service is completely free to retailers.

Perhaps another reason consumer groups are shying away from the debate is because it is local community services that are losing out on uncollected sales tax as more shopping shifts online.

What does surprise me, though, is that the Performance Marketing Association and other groups that support the affiliates have not been coming out in favor of Streamlined and federal legislation that would require ALL online retailers, not just those who sell through affiliates, to collect and remit sales tax.

Arkansas enacts affiliate nexus legislation

April 6, 2011

It’s official: Starting this summer, online retailers with affiliate marketers in Arkansas will have to collect sales tax on purchases by Arkansas residents.

This article in Internet Retailer confirms that is canceling its relationships with affiliates in the state:

By the end of today, Overstock will have sent notices to all of its Arkansas affiliates that it will no longer do business with them as of May 1, unless they re-locate to another state without a similar affiliate tax law, president Jonathan Johnson says.

No word yet from Amazon, but we expect that it, too, will soon cancel its relationships with Arkansas affiliates.

We continue to believe that federal legislation in the form of the Main Street Fairness Act is a better solution than affiliate nexus legislation, and we hope to see it enacted soon.