“We are writing from the Amazon Associates Program to notify you that your Associates account will be closed . . . effective June 30, 2013. This is a direct result of the unconstitutional Minnesota state tax collection legislation passed . . . on May 23, 2013.” So begins the letter received by Carrie Rocha of Pocketyourdollars.com–and thousands of other Amazon affiliates–informing her that Amazon is terminating its affiliate relationships in Minnesota due to the state’s new sales tax law.

Minnesota’s Amazon tax law 

Last month, Minnesota legislators passed a law requiring businesses with affiliate relations in the state to collect and remit Minnesota sales tax. This type of affiliate law is often called an Amazon Tax law, because some feel these laws specifically target Amazon. However, over 1,000 online businesses will be impacted by Minnesota’s Amazon Tax law, according to twincities.com.

Here’s how the new law will work: if an out-of-state business has an agreement with a Minnesota resident, or business, in which the resident refers potential customers in exchange for a commission, then the out-of-state company has to collect Minnesota sales tax if they gross at least $10,000 per year from the agreement (or agreements).

Minnesota is not the first state to pass an Amazon Tax law, and this is not the first time Amazon has severed affiliate relations in a state to avoid collecting sales tax.

The impact of Amazon’s actions

There are approximately 5,200 affiliates in Minnesota, according to Rebecca Madigan, executive director of the Performance Marketing Association (twincities.com). One such affiliate is Carrie Rocha, who writes about consumer bargains at Pocketyourdollars.com. Rocha predicts a 15 to 25 percent revenue drop as a result of losing her Amazon relationship. While Amazon is the largest retailer to cut affiliate ties, other retailers have also ended their affiliate relationships with Rocha in order to avoid collecting sales tax, including Overstock.com.

Amazon: if Federal online sales tax law passes, we will restore affiliates 

Amazon concludes its letter to Minnesota affiliates with a plug for the Marketplace Fairness Act of 2013, a bill that gives states the option of making businesses that aren’t physically located within their borders collect sales tax:

While we oppose this unconstitutional state legislation, we strongly support the federal Marketplace Fairness Act now pending before Congress. Congressional legislation is the only way to create a simplified, constitutional framework to resolve interstate sales tax issues and it would allow us to re-open our Associates program to Minnesota residents.

This call reads like the flip side to an email sent by eBay chief executive, John J. Donahue, to thousands of eBay sellers, urging them to speak out against the Marketplace Fairness Act:

This legislation treats you and big multi-billion dollar online retailers–such as Amazon–exactly the same . .  the bill would impose unfair tax burdens on small businesses.

While the fate of online sales tax legislation at the federal level has yet to be decided, the fate of Minnesota Amazon affiliates is sealed, at least for now.

How does your business handle sales tax changes?

Get Free Tax Rate Tables


Tags: , , , , , , , ,