Amazon Axes Minnesota Affiliates to Avoid Online Sales Tax

“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.

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About will

Will Frei covers sales tax news including best practices, legislation and sales tax technology. He is the Social Media Manager at Avalara.
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2 Responses to Amazon Axes Minnesota Affiliates to Avoid Online Sales Tax

  1. This saddens me. There are three terrible points we can see in this.
    1. MN is not interested in helping small business owners who have relationships outside the state. This includes thousands more than the article states, as these businesses are hurt by MN pushing their state law on businesses located in other states.
    2. Local MN companies are encouraged to leave the state to keep their businesses alive. This hurts many more businesses that work for those companies. This will mainly be small business as larger corporations will easily circumvent this tax law like many others.
    3. MN politicians who voted for this law do not understand math. Math can be both static (right now) and dynamic (next week). As the math stands now, yes there are millions in uncollected taxes. After Amazon and other companies fire their MN partners, there will only be thousands left in uncollected taxes. Think about this for a minute. The law affects the outcome of the math.

    To me, I hope we use the gathered thousands of tax dollars to send our politicians to economics classes and to the soon-to-be unemployed who lost their jobs due to this law.

  2. Not to beat a dead horse, but take a gander at a new article from twincities.com in which attorney generals from three U.S. states who do not collect sales tax sent letters to all U.S. (Washington, D.C, not MN) Representatives to not allow a United States wide version of this law as it is illegal. “Attorneys General Tim Fox of Montana, Michael Geraghty of Alaska and Ellen Rosenblum of Oregon said in their letter the proposal has legal and economic pitfalls. They claim the bill is an unconstitutional violation of due process because it allows states to collect taxes from retailers that have little or no contact with that state.”
    Legality of this law is questionable at a national level, and we are passing a state version of it?
    If allowed on this blog: http://www.twincities.com/ci_23444055/ags-urge-house-oppose-online-sales-tax (if not please delete the link).

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