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Thursday, June 30, 2011

Online Publishers Not Happy About Being Cut Off Over Sales Tax Scrap

Posted By on Thu, Jun 30, 2011 at 5:05 PM

For many online publishers, Amazon has closed up shop.
  • For many online publishers, Amazon has closed up shop.
Thousands of Californians learned yesterday that Amazon would no longer be paying them to participate in Amazon's affiliate marketing program. The reason? The proposed state budget includes a measure that would force Amazon to pay sales tax on any items California consumers buy.

We talked to several former Amazon Associates today, most of whom said the program made them only small amounts of money. However, they still seemed a bit bewildered at the speed of the decision to terminate the Amazon Associate program in California.

Take the case of Dave Rhodes, a 52-year-old, part-time event worker at USF. He operates a blog, The Rhodester Chronicles, and has been running small ads from Amazon, advertising products he chose himself, such as Amazon's Kindle. "I liked to get people reading," says Rhodes. "I wanted to get more Kindles into people's hands."

For every person who bought a Kindle via Rhodes' Web site, he would get 6 percent of the sale price. For a big-ticket item like a Kindle, that puts $8 in his pocket. For smaller items, it could amount to only pennies. "It was pizza money," says Rhodes. "A few $20 bills here and there."

Still, Rhodes was shocked at how quickly Amazon terminated their agreement. He received an e-mail warning him that the Associate program could end at 8:28 p.m. Wednesday. By 9:44 p.m., he got his notice of termination.

Mary, a 59-year-old Internet affiliate publisher who didn't want to use her last name, says the new  law has devastated her business. While the revenue wasn't large -- she says she brought in $10,000 last year -- it helped her and her husband make ends meet.

While talking on the phone, Mary watched as several other online merchants cancelled their affiliate marketing contracts with her. "Amazon is just one. There's Overstock, and Zappos, and Shopbop." Mary estimates that in one day, 25 merchants have terminated their agreements with her. "I'm going to see 10 to 15 percent of what I made last year now," she says with a sigh. "If I'm lucky."

California, she thinks, is making a mistake. "I don't believe California is going to see the results they think they're going to, because rather than increasing tax they're decreasing revenue. If you cut out the ability to make the revenue, there won't be anything to tax."

Bob Morse, a 59-year-old web developer from Eureka, says he never made much from his Amazon Associate links. Still, he, too, was taken aback by how quickly Amazon severed his agreement. "Two days ago I got an initial e-mail saying this was going to happen. The next day I got a letter saying, 'They passed the law. Goodbye!'"

Morse says he understands the business reasoning behind Amazon's decision, but "it's pretty bad to cut off 10,000 associate members with so little notice. It was just abrupt and there's no recourse whatsoever. It seems kind of odd."

Oliver Roup, CEO of Viglink, which helps publishers establish affiliate marketing programs, says he's not surprised by Amazon's decision. "Amazon made it clear what they were going to do, and they did it," says Roup.

Roup is familiar with imbroglios like this one. Viglink formerly kept one of its headquarters in Chicago. However, Illinois recently passed a law similar to the California measure, and Viglink relocated from Chicago to Indiana while also establishing a new office in San Francisco.

Roup says that while he has no plans to move out of California, it's a short-sighted decision by the California state government to attempt to tax online retail sales. Other states that have passed similar measures, Roup says, have all failed to collect any income or sales tax from Amazon.

California, he says, is overstepping its regulatory bounds. "Only the federal government has the right to tax interstate commerce," he says.

Meanwhile, on forums dedicated to Internet affiliate marketing, California-based web publishers who relied on Amazon's revenue are trading advice on how to set up LLCs in states such as Nevada and New Mexico. Writes one user:

Here's the deal for all of you California (and other affiliates that Amazon dumped).

You do not have to change your ISP or your bank account. Just because your original bank account is in California (for example), does not mean you live there. You can move across the country and still keep the bank account you opened in California.

Get the Las Vegas address and then act as if you live there -- especially if you don't work for an outside employer.

Change your Amazon address. They only go by what's in your profile. If they send you mail, Maillink will forward the mail to wherever you happened to be.

It seems for some online publishers, it might be time to get out of the Golden State.

Follow us on Twitter at @TheSnitchSF and @SFWeekly.
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Jake Swearingen


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