Sales Tax Impacts Amazon Affiliates

Amazon continues with its affiliate program in New York but has now stopped its affiliate programs in both Rhode Island and North Carolina. All three states have passed laws that would have required Amazon to collect sales tax on their affiliate program. Obviously, some states are worth the effort others maybe not.

So what is this sales tax and why is it affecting affiliate programs?

Sales tax is applied to the total amount of the order including gift-wrap fees and is based on the shipment's destination state and local sales tax rates. States that impose sales tax collection on Shipping & Handling expenses require that sales tax be applied to Shipping & Handling when the item that is being shipped is subject to sales tax. There are exemptions such as magazines, bibles and some states have no sales tax. The US also needs to note that goods sold to Canada incur GST (Goods and Services Tax).

The state of many state budgets is forcing them to look again at Sales tax and the opportunity to close loopholes and collect money. After all the tax is exactly the same as someone buying a book or goods in a retail store, they total the goods up and then sales tax is applied at the checkout. In the case of the affiliate program they would have to collect the tax and many may claim this would impact their business. So as an affiliate it would appear I have an economic model built on tax avoidance.

The question then is whether Amazon is right to blame the tax system for their withdraw from North Carolina, but accommodate it in New York? Many, such as Barnes and Noble, operate affiliate programs and deal with the taxation issues, so why can’t Amazon? Some may say that the affiliate program was just a way to build their brand and drive more buyers to what was an Amazon store that was being merchandised by others. They would also point out that the Kindle is ‘affiliate free’ and there has been a steady change in the affiliate business model that has been applied in Amazon’s favour.

There needs to be a level playing field between the physical store and the virtual one. Like so many issues, digitisation is now forcing us to question boundaries, rules and practices that have never been really tested.