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Ain’t nothing free, kids

Friday, Mar 11, 2011

* While many of us - including myself - are extremely distressed to see the possible destruction of a growing online business model in Illinois with yesterday’s signing of the “Amazon Tax,” Amazon’s adamant refusal to collect sales tax anywhere in the United States is just flat-out wrong.

The Internet’s “free” culture is a wonderful thing. But it can get outta hand. Downloading pirated music has been a big problem for artists, for instance. The online user reaction is generally to blame greedy record companies for ginning up a non-crisis, but artists should be compensated for their work. You can listen to a radio station for free, but that station is charged a percentage of its gross for the music it airs. Most people don’t quite get that.

Because of this mentality, pay-to-read online content models haven’t worked out all that well except for a few publications, like the Wall Street Journal, Crain’s, mine and others which target specific audiences. People have been led to believe that everything should be free on the Interwebtubes. It shouldn’t. I don’t make nearly enough money off of ads to justify taking the locks off.

* Anyway, back to Amazon, a company which hates sales taxes so much that it will upend companies, their workers and their families if anybody tries to make them collect one red cent. The US Justice Department should probably look into their business practices.

Companies with a brick and mortar presence in Illinois have to collect sales taxes. Amazon, Overstock.com and others don’t have that same physical presence, so they don’t collect the tax. Brick and mortar retailers, like Walmart, Sears, Best Buy and others, fought back by pushing this bill. Amazon has affiliates who link to the company’s products and get a percentage of the take. (I used to be an affiliate long ago, but decided it just wasn’t for me.) The affiliates’ physical presence in Illinois is what the legislation targeted.

Roger Ebert is an Amazon affiliate and he expressed anger at the company yesterday via his Twitter feed

Amazon will terminate my Associates account on 4/15, in order to evade fair and just Illinois taxes. I have 20 more days to make a fortune.

* This new law is not - not - a new tax, regardless of what you may be reading elsewhere. WGN’s headline: “Gov. Quinn signs law to tax online purchases” is bogus. The tax has already been there. Individuals were supposed to report themselves, which is rarely done.

Retailers have watched for years as online companies have grabbed market share. Frankly, they should’ve jumped into the Internet game far earlier. Some of their motivations seem a bit Luddite to me.

But they have a valid point that if you live in Illinois, you ought to pay the state sales tax. Look at how automobile purchases are taxed. The local sales tax is not based on where you buy your car, but where you live. That was done to help stop the flow of auto dealers from towns or counties when local sales taxes went up. It’s completely fair, in my opinion.

* Here’s how this bill passed. The leaders and the governor were in a meeting and they needed more revenue. They were given a range of options. They chose this one, mainly because the Illinois Retail Merchants Association was so heavily on board. Senate Republican Leader Christine Radogno was a hyphenated co-sponsor. It passed 49-6 in the Senate, but then the opposition realized what was going on and the bill’s House margin was more narrow, but still a pretty darned wide and bipartisan 88-26.

Personally, I would’ve preferred that Quinn veto the bill rather than sign it, even though it was a leaders’ agreement and therefore sacrosanct. Amazon’s bullying is way out of line, but so many new and interesting companies are sprouting up here to take advantage of online sales and marketing that I thought it was worth a delay to try and work something out and keep those new companies going in the meantime. So, I’m kinda with the Chamber here

The Illinois Chamber of Commerce has mixed feelings about the new law, said lobbyist Todd Maisch. While it makes competition more equitable, he also said it could raise prices and hurt some Illinois companies.

“There are a lot of businesses whose business model is to work with companies like Amazon essentially as marketing partners,” Maisch said. “They’re the ones that will be impacted by the bill.”

* But not everybody is leaving

Brad Wilson, founder of BradsDeals.com, is staying in Chicago for now but predicted the new law will stunt the growth of the deal-site industry that has sprouted in Illinois.

“Chicago doesn’t lead on the Internet in many things, but this space is one of the things that we do, and the state should cherish that and foster that,” Wilson said. “These are modern business models. They don’t require factories or fixed investments. They require smart people. And you can find smart people anywhere. They’re legislating (this industry) out of the state.”

* This post ended up way longer than I expected. Sorry. Let’s get to the roundup…

* Amazon cuts ties over state taxes: Amazon has closed affiliate programs in Colorado, North Carolina and Rhode Island for similar reasons. The company has also closed a distribution center in Texas over sales tax issues.

* Quinn signs ‘Amazon tax’ bill — to loud boos and cheers

* Illinois enacts Internet sales tax law - Gov. Pat Quinn signs bill into law, prompting Amazon.com, Overstock.com to say they will cut ties with affiliates in state

* Amazon.com Cuts Ties With Illinois Affiliates Over Tax Law: Amazon fell $2.91 to $166.14 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 27 percent in the past year.

* Ebert and Others Cut From Amazon Affiliate Program: Ebert told ClickZ News in a Q&A in January that he uses his Amazon Associates program commissions “to defray the cost of content on my site.” He went on to state that he makes around 7 percent on each Amazon sale originating from his affiliate links. “I hope my Amazon links are often useful or amusing,” he said.

* Quinn signs law to collect online sales taxes: But David Vite, president and chief executive officer of Illinois Retail Merchants Association, said the law will keep national online companies from taking advantage of a tax loophole that isn’t available to their Illinois competitors. “They are bullying small businesses,” Vite said. “They don’t want to collect the tax because they like that competitive disadvantage.”

* Press Release: IL AFL-CIO president comments on passage

* Press Release: Best Buy Supports E-Fairness

- Posted by Rich Miller        

36 Comments
  1. - MrJM - Friday, Mar 11, 11 @ 11:22 am:

    o/t - I think a Capitol Fax t-shirt featuring the phrase “Elevate yourself or leave” would sell like hotcakes.

    – MrJM


  2. - Rich Miller - Friday, Mar 11, 11 @ 11:24 am:

    lol, MrJM. One of my regular commenters bought me a t-shirt in Florida featuring a shark saying “Bite me.”


  3. - Vibes - Friday, Mar 11, 11 @ 11:26 am:

    I, for one, will switch my online sales to another provider that isn’t so heavy-handed against my neighbors’ businesses. I’ve loved Amazon a lot, and I wouldn’t mind paying the extra tax through there, but this is just nuts.

    Does the law apply to iTunes since there are a number of Apple stores in the state? If so, and as long as Apple doesn’t shut em all down, I guess I’m trashing the Kindle for the iPad.


  4. - Irish - Friday, Mar 11, 11 @ 11:27 am:

    The part of this that I don’t understand is how does the State expect to collect the back taxes from 2004 forward? I saw a blurb that stated the Revenue Department was figuring a percentage of a persons income and charging that, to be paid when the individual was filing their taxes.

    They also stated that they were allowing an amnesty and if you paid what you owed before they came after you there would be no penalties.

    How can they charge everyone this back tax when it was not a condition of the original purchase?

    And how can they charge everyone a percentage when there are people who never purchase online?

    And finally how do they know what or if you purchased anything?


  5. - Edison Parker - Friday, Mar 11, 11 @ 11:30 am:

    I’m not trying to be snarky, just making a point.

    Vibes, how much of the sales tax you were supposed to self-report to Illinois from you Amazon purchases have you actually paid?

    The point being that you can get all self-righteous and bash Amazon but Amazon has a financial duty to its shareholder to maximize profits not help Illinois. You, as an Illinois resident, do have a legal obligation to report those taxes and I’m betting you didn’t.

    Amazon made a business decision and you, as consumer, can also decide not to shop there. Fine. But, spare the outrage over Amazon’s position.


  6. - Fed up - Friday, Mar 11, 11 @ 11:34 am:

    This needs to be done on a federal level. Like immigration if the Feds ignore it states will be forced to fill the void with varying degrees of success. Hopefully other states pass similar laws so that their is no incentive for businesses to leave Illinois.


  7. - Rich Miller - Friday, Mar 11, 11 @ 11:42 am:

    ===but Amazon has a financial duty to its shareholder to maximize profits===

    So does Best Buy, dude. And “duty” would be the wrong word to use.


  8. - Responsa - Friday, Mar 11, 11 @ 11:42 am:

    I’m of the opinion that this bill came and went too fast and has not been well thought out in terms of implementation. Regardless of how you feel about Amazon’s actions with respect to cutting loose the affiliates, they have, at least for now, relieved themselves completely from the responsibility/job of collecting Ill sales tax on purchases. That means that tax collection for Illinoisans who buy/bought online will incorporate either the “honor system” or the “guesstimate” system. It’s going to be a mess.


  9. - wordslinger - Friday, Mar 11, 11 @ 11:43 am:

    –They require smart people. And you can find smart people anywhere. They’re legislating (this industry) out of the state.”–

    That’s a variation of the “we can do this anywhere” argument. It’s logical on the surface, but doesn’t hold up.

    The fact that you need smart, highly skilled wizards to run these companies precludes them from “going anywhere.”

    These smart people demand a lot of their environment in terms of culture, entertainment, amenities and access to folks like themselves.

    To get the best and brightest in these businesses, you have to offer more than a paycheck. That they can get anywhere.

    If it were all just dollars and sense, these companies wouldn’t be in Silicon Valley, Chicago, New York, Tobacco Row, Austin, etc. They’d be in Nebraska and Iowa.


  10. - CC - Friday, Mar 11, 11 @ 11:43 am:

    Amazon and Overstock’s actions throughout the history of affiliate nexus tax legislation has been pretty horrible in my opinion. Unfortunately, however, they appear to be quite committed to their position, meaning that, in states that pass nexus legislation, everybody essentially loses. What is really needed is federal action that will enforce sales tax collection uniformly across the country. At that point, I think most companies will quit fighting, restore their affiliate contracts, and collect the tax. I wish Governor Quinn would have vetoed the legislation and encouraged federal action.

    Affiliates who relied heavily on Amazon or Overstock also face a bit of a quandry. They must look into moving to protect their income, yet doing so can give the appearance of supporting the position or importance of companies such as Amazon. Over the past year, I have urged new affiliates to avoid promoting companies who drop contracts in the face of legislation, both to protect the affiliate’s business, but also because the actions of those companies simply should not be encouraged. Avoiding Amazon can be difficult for many though, since Amazon is often the best source for certain affiliates. Many others, such as myself, may have quit promoting them some time ago, but still have many older active links. I have been preparing for the loss of Amazon for some time, but I will still lose some income, both from Amazon and from a few smaller companies who will drop me. Thus, I am exploring incorporating in Indiana, which has given indications that it will pursue a federal solution instead of nexus legislation.


  11. - Been There - Friday, Mar 11, 11 @ 11:44 am:

    ===Amazon has a financial duty to its shareholder to maximize profits===
    The only way Amazon maximizes profits because of this is by enabling customers who think they dont owe any tax. Amazon would not be paying the tax. The customer would. But their sales would be hurt because their customers wouldnt have an easy way to dodge out the tax they owe.


  12. - OneMan - Friday, Mar 11, 11 @ 11:50 am:

    If I could learn to play the guitar then I would have money for nothing and my chicks for free…

    Also at this point I think the internet has been given enough time to gestate, lets have the internet retailers and the catalog folks start charging sales tax


  13. - CC - Friday, Mar 11, 11 @ 11:52 am:

    Coupon Cabin has now announced in a press release that it is exploring a move to Indiana. That also made me realize that my use of CC as a name could cause readers to believe that I am associated with them. I am not. I am simply a niche blogger who focuses heavily on affiliate marketing.


  14. - Rich Miller - Friday, Mar 11, 11 @ 11:54 am:

    CC, that news was posted here yesterday.


  15. - Robert - Friday, Mar 11, 11 @ 11:55 am:

    As part of that business decision Amazon made and continues to make to attempt to evade state taxes, it must evaluate the potential for affiliates to be upset at them, negative PR, and further government action.

    So if Amazon’s tactics are perceived generally as heavy-handed, and if more people make points that Rich made in his post and if some become outraged at Amazon and take their business elsewhere (e.g., Walmart’s move), then Amazon could absolutely choose to reconsider and reverse course on that decision at some point.


  16. - wordslinger - Friday, Mar 11, 11 @ 11:56 am:

    –Coupon Cabin has now announced in a press release that it is exploring a move to Indiana. That also made me realize that my use of CC as a name could cause readers to believe that I am associated with them.–

    Press releases cost nothing. Moving costs a lot.

    I always assumed you were CC Ryder. Now see what you have done now.


  17. - CC - Friday, Mar 11, 11 @ 11:57 am:

    Sorry. I missed it, and just now got it in my email. I also just got my first termination from a smaller company (ShopBop). I actually haven’t received my Amazon and Overstock notices yet. I must be at the back of their automailer queues.


  18. - Nuance - Friday, Mar 11, 11 @ 12:03 pm:

    Couldn’t agree with you more, very well put. You have to wonder what Amazon and other companies plan to do if this type of legislation gets traction and is enacted in a number of states. They might have a hard time re-recruiting the affiliates they are dropping like a ball. Could dramatically change the competitive landscape.


  19. - CC - Friday, Mar 11, 11 @ 12:03 pm:

    I don’t think it will actually cost Coupon Cabin much to move, and the couponers really will lose quite a bit of income if they stay. Online businesses, even those with full offices and employees, are pretty portable. Interestingly, I also think that the way the IL law is written, that an incorporation out of state with offices remaining in-state can suffice. In NY they made sure that offices and residences in-state would count, but not here. IL focuses only on the business location and incorporation elsewhere might suffice without a physical move. That could end up to be an interesting legal question.


  20. - 10th Voter - Friday, Mar 11, 11 @ 12:03 pm:

    “Does the law apply to iTunes since there are a number of Apple stores in the state?”

    I got taxed on my recent purchase of the MLB app on iTunes - and just so you know Rich, I purchase it every year mainly to listen to CUBS games online :)


  21. - Edison Parker - Friday, Mar 11, 11 @ 12:34 pm:

    Been There: While you are correct that Amazon will not pay the tax, they will incur costs in collecting the tax and remitting it to the State. They seem to believe that this is not worth it to them.

    Rich: Uh, I think financial duty to shareholders would be the correct corporate law term to describe their obligation to shareholders. I’m a criminal lawyer, not corporate. The reference to Best Buy is a red herring, because Best Buy has brick and mortar presence in the State of Illinois. Obviously like all corporations they too have a duty to maximize shareholder, but so what? I’m missing your point.

    If it is that why should they collect tax but not Amazon, it’s because of the brick and mortar presence and one could argue that because of that they benefit from a host of city and state services (sewer, police, fire protection, road maintenance, etc) whereas Amazon does not. But still, that has nothing to do with their equal duty to shareholders.


  22. - Edison Parker - Friday, Mar 11, 11 @ 12:40 pm:

    Sorry: did the research. duty to maximize shareholder value is a best practice, not a legal requirement.


  23. - reflector - Friday, Mar 11, 11 @ 1:09 pm:

    I think the tax is good.I paid it on my income tax this year.I buy over the internet because I’m lazy,but really there are many things I can get that are not available at our local stores.I will gladly pay the tax.


  24. - Leroy - Friday, Mar 11, 11 @ 1:10 pm:

    MrJM -

    “Elevate yourself or leave” reminds me of “We’ve upped our standards, now up yours”


  25. - Just Want to Get It Right - Friday, Mar 11, 11 @ 1:43 pm:

    Question, Are we required to pay state tax on everything we buy online or just on things where the seller has some kind of location in Illinois?


  26. - VanillaMan - Friday, Mar 11, 11 @ 1:44 pm:

    What I buy online is not available in bricks and mortar stores. Anyone selling this tax as a way to even the market sales field isn’t completely aware of the differences between online goods and services and physical store goods and services.

    As our businesses struggle to keep store fronts from being vacant, this bill is about as effective as homeopathy is to a migraine headache.


  27. - CC - Friday, Mar 11, 11 @ 1:51 pm:

    Interesting tidbit: Walmart actively courted IL affiliates and was a big supporter of the tax nexus legislation. It at times also argued that it could provide a replacement program for former Amazon associates. But here is their follow through on that: I know of a person dropped by Amazon who was today denied entry into the Walmart program because she operates as a blog, a format that many affiliates operate under these days.


  28. - Joe - Friday, Mar 11, 11 @ 2:30 pm:

    @wordslinger

    Or, Indiana.


  29. - somebody tell amazon - Friday, Mar 11, 11 @ 2:58 pm:

    they can make $$ in Illinois collecting sales tax.? State pays walmart tens of millions of $$ each year to click a few buttons–maybe they will be back when they realize this is a new revenuestream!!


  30. - anon - Friday, Mar 11, 11 @ 3:18 pm:

    Rich is right, as usual. It’s not a new tax, just the same old sales tax you always pay on purchases. This is just a law requiring companies with a presence in the state to collect it. Sidenote: for companies not having a presence in the state, they can’t be made to collect it for the state. That was the holding Quill Corp. v. North Dakota, 504 U.S. 298 (1992). However, you personally still owe it and are supposed to report it.


  31. - Quinn T. Sential - Friday, Mar 11, 11 @ 3:22 pm:

    {However, you personally still owe it and are supposed to report it.}

    Are brick and mortar retailers compensated in anyway for the cost of collecting and remitting the monies, or are they simply penalized if they don’t?


  32. - Rich Miller - Friday, Mar 11, 11 @ 3:28 pm:

    ===compensated in anyway for the cost of collecting and remitting the monies===

    Yes. They get to keep a portion of the sales tax.


  33. - Quinn T. Sential - Friday, Mar 11, 11 @ 3:31 pm:

    Yes. They get to keep a portion of the sales tax.

    So what if they instead offered a vouluntary discount for self reporters and payors; and super stiff audit and enforcement penalties for avoiders.


  34. - wordslinger - Friday, Mar 11, 11 @ 3:45 pm:

    Rich, thanks for including Ebert’s take. Besides being a Chicago newspaper legend, he’s the greatest movie critic and essayist ever, an incredible writer, a sharp intellect and one tough Illini.

    –What I buy online is not available in bricks and mortar stores.–

    VMan, I don’t doubt it. No mas informacion, por favor.


  35. - Bigtwich - Friday, Mar 11, 11 @ 3:54 pm:

    It has been a long time since Quill Corporation (S Ct 1992) and National Bellas Hess (S Ct 1967) were decided. The world has gone around, indeed turned upside down, and the ubiquitous nature of the internet is a long way from giving some one a floppy disk or taking orders by mail and could be seen as providing substantial nexus that would allow taxation. It might be fun to pass a law taxing the sales of any company that does X number of dollars of sales in the State in the previous year.


  36. - Anonymous - Friday, Mar 11, 11 @ 4:15 pm:

    “if you live in Illinois, you ought to pay the state sales tax…”

    No, that’s not how it works in practice. A state can charge sales taxes with the understanding that if they tax too much, they will lose revenue as people decide it’s worth it to travel beyond state lines to avoid the tax. That is essentially what an e-commerce is. It’s not any different than driving to Michigan, Indiana, or Wisconsin. That’s the policy reality that should affect any state tax. Simply saying “Well, then we’ll make it a use tax” is going to encourage tax evasion.


Sorry, comments for this post are now closed.


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