April 1, 2011, 5:07 PM

Arkansas enacts an “Amazon tax” law

Arkansas becomes the fifth state with an affiliate sales tax law.

Paul Demery

Managing Editor, B2B E-commerce

Lead Photo

Arkansas Gov. Mike Beebe, a Democrat, has signed a bill that requires Internet retailers to collect sales tax if they accept referrals from affiliate web sites and do more than $10,000 a year in sales in Arkansas.

SB 738, which is referred to in Arkansas as the both Amazon Tax law as well as the Main Street Fairness law, makes Arkansas the fifth state to enact such legislation, joining New York, North Carolina, Rhode Island and, most recently, Illinois, according to Daniel Schibley, a state and local tax analyst at CCH Inc., a unit of Wolters Kluwer that publishes tax and business information.

Illinois is the only state so far to enact a law this year, though since the beginning of this year similar bills have been introduced in more than 10 states, Schibley adds.

Opponents of the affiliate laws contend they will scare away business, as Amazon and other retailers sever their commission relationships with affiliates and in some cases lead affiliates to move out of state.

One affiliate company that is leaving Illinois, for example, is FatWallet.com, a site that offers coupons and other discount offers that consumers can use to make purchases on retail web sites. Although the Illinois law isn’t due to go into effect until July 1, FatWallet has already received letters from several merchants planning to terminate their commission relationships by April 15, and FatWallet estimates that it could eventually lose between $4 million and $5 million, or up to 40%, of its annual revenue, a spokesman says.

Based in Rockford in the northern part of Illinois, FatWallet is moving its staff of 54 employees and its web site infrastructure three and a half miles north to Beloit, WI, where it has signed a one-year lease and expects to be in full operation by April 11. “We have a state-of-the-art, high-tech facility, and we regret losing the community support we’ve had in Rockford, but we’re not big enough to take this kind of hit,” the spokesman says.

The affiliate sales tax laws are one of the latest efforts by states to collect tax revenue from retailers who are not otherwise required to collect sales tax under federal law that says they can only be required to collect the tax in states where they have a physical presence, such as stores or fulfillment centers. By enacting the affiliate laws, the states are making the case that in-state affiliate web sites constitute a physical presence by serving as a source of customers for online retailers based out of state. A study by the University of Tennessee has estimated that states stand to collect more than $23 billion in revenue by 2012 if all retailers are required to collect sales tax.

 

Comments | 6 Responses

  • Add Colorado to that list. While its a good short term strategy for Fatwallet, Amazon and others, longer term I doubt that it is. What does Fat Wallet do when Wisconsin enacts similar legislation? Move again? How many states can Amazon afford to sever ties with? The sad news is that tax increases have to happen because of the hungry pigs spending our money while printing ever more of it. They will never stop until the final crash. Taxes online sales is inevitable and will likely happen in increasing states.

    • Thanks for your note. For clarification, Colorado has not enacted an "Amazon tax" law that requires Internet retailers to collect sales tax if they have affiliates in the state. An affiliate measure was introduced as part of a legislative proposal but was deleted in favor of a law that requires Internet retailers to report transaction data to the state to help the state collect use tax from residents. That law is currently tied up in court. Amazon, meanwhile, says it has ceased paying affiliates in Colorado because it opposes the state's overall legal approach toward Internet retailers. For more information, use the search box above to find the articles "E-retailers win tax ruling in Colorado" and “Colorado hit with online sales tax suit.” --Paul Demery

  • Does Amazon think it is so big that it can ignore the loss of customers? The fact is that affiliates are also customers on the site, and if the retailer wants to avoid shedding its reputation as the best site on the internet, it will find ways to work with the affiliates. I am neither an affiliate or associate seller for Amazon, and if it is going to stab its customers in the back, I don't plan on becoming one, either. As an online retailer with my own site, I don't collect sales tax but I do remit to my state as a courtesy to my customers and to avoid the loss of sales. It only makes political sense, even if the system is broken. I have to compete with Amazon for sales of my own products on its site, and it is difficult enough to drive traffic to my own site without it. Amazon is an example of the big loud cousin next door, and it will have to learn that it can't have its cake and eat it, too.

  • I'd like to hear reporting on how each state expects online merchants to comply. Are we supposed to separate sales by each county (each with different tax rates) and then look at each sale to determine if the shopper ever came through an affiliate (as opposed to other types of online partners), and then render the tax at checkout. This all has to happen in real time of course, and I'd like to comply, but isnt it going to take a serious technology implementation for this to happen on the fly? Also, Im sure each states regulation is slightly different, so how would all the differences (in terms of how you identify it as an affiliate related sale) be accounted for? In short, I'd like to comply, but dont know how. Frankly it seems impossible.

  • Sounds like companies might need to consider doing business in sales-tax free states like Oregon. My company, a fulfillment business helps out of state customers avoid this liabilitiy by taking title to the product and shipping from Oregon. Hope more clients figure out there is an answer to this dilemma.

  • I imagine that these "Amazon taxes" will be successful in the eyes of the states and the states will expand this to include vendors. I can see North Carolina including a web host in the definition of 'presence' in the state. Illinois could include our SEM agency as a 'presence' in the state and require us to tax our online customers. Just a matter of time I am sure. We are already getting squeezed on the shipping problem. The cost of goods and shipping added to slim markups is making it difficult to bury the cost of shipping in the price of products. Offering free shipping is not in the cards, but we may be forced eventually.

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