Amazon: North Carolina Affiliates Will Be Terminated When “Unconstitutional Tax Collection Scheme” is Enacted (Another Good Reason to Use Skimlinks?)

I received an e-mail this morning from Amazon.com, informing me that they would soon be terminating all North Carolina affiliates (Amazon.com Associates) due to an “unconstitutional tax collection scheme” that the General Assembly of the North Carolina state legislature appears ready to put in place.

For now, all affiliates are still able to generate income from their links, but once the law is enacted it will go into effect immediately, and affiliate commissions will cease. Amazon.com says that could happen in the next two weeks.

The company says that they made their case to senators and representatives in Raleigh, including leadership in the Senate, House and both chambers’ finance committees. Apparently, Maryland, Minnesota and Tennessee had been considering “nearly identical schemes,” but decided against them. Amazon.com says this is because they had an “adverse impact on their states’ residents.”

The e-mail provides links to both the General Assembly and the Performance Marketing Alliance for more information and closes with Amazing pledging to keep North Carolina affiliates informed of the General Assembly’s further action.

I’m definitely disappointed by this, just because I am a fan of Amazon.com, a shareholder and I use their program. It’s a very, very small part of my business, so I’m not so concerned about that, though I wonder how this could affect similar programs and other means of revenue generation. Perhaps Amazon.com’s move is part of a chess match and it’ll all work out. I hope so.

If they don’t, a solution that I would suggest would be that, if you are affected by this, it would now be a good opportunity to take a look at Skimlinks, who I reviewed on ManagingCommunities.com. Since they are not located in North Carolina, they likely will be unaffected by this and will still be able to pay North Carolinians who link to Amazon.com. I’ve been using them for a while and I am pretty happy with their operation. So, if you are in North Carolina and this ends up being enacted, I’d give them a look.

Update: While reading a post by fellow North Carolina resident Andy Beal, I noticed that Tracy Needham pointed to Senate Bill 202. I went and pulled up the bill, which can be found on the General Assembly website. Click on “Senate Bill 202, 6th Edition Engrossed, as passed by North Carolina House of Representatives June 13, 2009 (39 amendments engrossed),” as I don’t want to hotlink to their .PDF. I went through it and cleaned it up a bit and this appears to be the relevant section (emphasis mine):

NEXUS CLARIFICATION AND CLICK-THROUGHS
SECTION 27C.2.(a) G.S. 105-164.3(18) is recodified as G.S. 105-164.3(33g) and reads as rewritten:
§ 105-164.3. Definitions.
The following definitions apply in this Article:

(33g) Remote sale. – A sale of tangible personal property, ordered by mail, by telephone, via the Internet, or by another similar method, to a purchaser who is in this State at the time the order is remitted, from a retailer who receives the order in another state and transports the property or causes it to be transported to a person in this State. It is presumed that a resident of this State who remits an order was in this State at the time the order was remitted.

SECTION 27C.2.(b) The catch line of G.S. 105-164.8 reads as rewritten:
§ 105-164.8. Retailer’s obligation to collect tax; remote sales subject to tax.

SECTION 27C.2.(c) G.S. 105-164.8(b) reads as rewritten:
(b) Remote Sales. – A retailer who makes a remote sale is engaged in business in this State and is subject to the tax levied under this Article if at least one of the following conditions is met:

(1) The retailer is a corporation engaged in business under the laws of this State or a person domiciled in, a resident of, or a citizen of, this State.

(2) The retailer maintains retail establishments or offices in this State, whether the remote sales thus subject to taxation by this State result from or are related in any other way to the activities of the establishments or offices.

(3) The retailer solicits or transacts business in this State by employees, independent contractors, agents, or other representatives whether the remote sales thus subject to taxation by this State result from or are related in any other way to such solicitation or transaction of business. A retailer is presumed to be soliciting or transacting business by an independent contractor, agent, or other representative if the retailer enters into an agreement with a resident of this State under which the resident, for a commission or other consideration, directly or indirectly refers potential customers, whether by a link on an Internet Web site or otherwise, to the retailer, if the cumulative gross receipts from sales by the retailer to purchasers in this State who are referred to the retailer by all residents with this type of agreement with the retailer is in excess of ten thousand dollars ($10,000) during the preceding four quarterly periods. This presumption may be rebutted by proof that the resident with whom the retailer has an agreement did not engage in any solicitation in the State on behalf of the seller that would satisfy the nexus requirement of the United States Constitution during the four quarterly periods in question.

(4) Repealed by Session Laws 1991, c. 45, s. 16.

(5) The retailer, by purposefully or systematically exploiting the market provided by this State by any media-assisted, media-facilitated, or media-solicited means, including direct mail advertising, distribution of catalogs, computer-assisted shopping, television, radio or other electronic media, telephone solicitation, magazine or newspaper advertisements, or other media, creates nexus with this State.

(6) Through compact or reciprocity with another jurisdiction of the United States, that jurisdiction uses its taxing power and its jurisdiction over the retailer in support of this State’s taxing power.

(7) The retailer consents, expressly or by implication, to the imposition of the tax imposed by this Article. For purposes of this subdivision, evidence that a retailer engaged in the activity described in subdivision (5) shall be is prima facie evidence that the retailer consents to the imposition of the tax imposed by this Article.

(8) The retailer is a holder of a wine shipper permit issued by the ABC Commission pursuant to G.S. 18B-1001.1.

SECTION 27C.2.(d) This section is effective when it becomes law.

If you read bullet point 3 carefully, you’ll see that this is the portion that affects affiliates. If Amazon has a North Carolina resident in their program, they are deemed to be “soliciting or transacting business” and would then have to collect taxes.

Beal’s post also features a handy link to a representative locator (care of Scott) where you can find out who your local representative is, so that you can contact them.

Finally, as a reminder, general political discussion isn’t something that is allowed here in the comments. I welcome you to respectfully, calmly discuss the issue, but please steer clear of party politics, blaming parties, etc. and focus on the issue at hand. Thanks.

Patrick O'Keefe

Managing online communities since 2000, I publish a collective of websites known as the iFroggy Network. I wrote the book Managing Online Forums and, as a public speaker, have presented for organizations like CNN, institutions like Australian National University and conferences like SXSW. More about me.

7 Comments

Jason Keath

about 5 years ago

Just shows that states are desperate for cash and are looking to all sorts of new taxes to fill the gap. I imagine there will be some workarounds for people affected by this or we can hope NC will see the light. Also find it hard to believe that Amazon would blacklist a whole state. Seems like a big bluff. Hopefully the end user is not the one that gets screwed in this scenario. Have seen similar things in the advertising industry. States and the Fed have tried to slide several versions of taxes on advertising into recent legislation. Though I imagine affiliates have less of a lobbying presence than the ad industry to combat these taxes with.

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Eric Martindale

about 5 years ago

I was horrified when I received this email... and I am ashamed of our government for enacting this! I'm afraid that some of the other online businesses will be following suit, as this tax collection bill seems pretty broad. I'm going to do some digging and see if I can't find more information from the NC State Legislature about this. Maybe @waynesutton will be able to lend a hand?

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carolyn

about 5 years ago

Ugghh! What a way to wake up this morning. I just turned 50 yesterday and this was not a good way to start the day after for me at all! I have been working 4 long years on my site. I just recently added Amazon as an affiliate and just got to the 'snow ball' point with their links. The site stripe is so easy to use anytime I need it. My sales were going up, up, up and now this! Boo Hiss! I can't do this anymore! My mentally disabled child and I depend on the income from my online sales. It keeps me working at home so I can take care of his needs. I am just about to sell everything I own and go to another country if anything else happens. I have written Bev Perdue and asked her to block the legislation. This sucks!

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Leo Wurschmidt

about 5 years ago

For me it is sad, but not a crushing blow. I thought it was a neat way to infuse my love of reading and writing on my blog(s), along with wanting to help people find books that I recommend with helping Amazon bring in more customers. I think that was the biggest reason I was a disappointed when I read the email from Amazon this morning. It never paid the bills, but it drove a few pennies in every so often. I hope NC changes their mind on this, but I can also understand their position.

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Patrick

about 5 years ago

Thanks for the comments Jason, Eric, Carolyn and Mr. Wurschmidt.

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Lynn

about 5 years ago

This almost happened to Tennessee not long ago. I sent letters to my representatives and heard back from one. Although I don't know if my letters helped, at least I felt like I had done something to protect my interests. I, like some other commenters, don't make all that much with Amazon, but I was afraid that there would be a mass of affiliate programs who would block Tennessee, such as what happened with New York. All in all, this makes me very nervous about putting effort into growing affiliate sales versus finding other ways to support my website habits.

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Patrick

about 5 years ago

Thanks for the comment, Lynn. I appreciate you sharing your thoughts.

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