Amazon sent the following out to all Amazon Associates in the wee hours this morning:

We are writing from the Amazon Associates Program to notify you that your Associates account has been closed as of June 26, 2009. This is a direct result of the unconstitutional tax collection scheme expected to be passed any day now by the North Carolina state legislature (the General Assembly) and signed by the governor. As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 26. We were forced to take this unfortunate action in anticipation of actual enactment because of uncertainties surrounding the legislation’s effective date.

To say the least I am furious as much with Amazon as I am the Tax and Spend Democrats in North Carolina. First off Amazon showed no respect to it’s Associates by abandoning them with no notice. There are Associates in this state that make a large portion of their annual income from referral fees from Amazon and in this time of hardship to cut those fees with no notice or options provided by Amazon was poor business, poor enough that I for one will likely stop using Amazon as a service all together. There are other sites which provide community service, of which we hope we fall into, which use any referral fees to offset the cost of running a server. Second and probably more importantly this legislation Amazon is referring to has not passed and as far as I’ve heard will not pass as the House and Senate do not have an agreement in place. Why would any business cut it’s own lead generation when there was no need to do so only makes sense if you assume Amazon did this to force it’s Associates to rise up against the tax and contact their representatives. Using their Associates as a hammer shows no feeling for how Amazon’s actions could directly cripple those Associates and is the action of a business I would prefer not to do business with. Yes I know the Amazon music link is still active on this site, I’m looking for a replacement but that banner is there more to promote the artist and not Amazon services.

Secondly as to the tax itself it is unconstitutional as Amazon states. Specifically North Carolina is attempting to tax so called “digital click-throughs” as if the sale resulting from that click occurred in North Carolina at a physical location. This type of transaction is covered by the US Constitution in the Commence clause, Article 1, Section 8, Clause 3:

Section 8. The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

To regulate commerce with foreign nations, and among the several states, and with the Indian tribes;

Now if the above clause is not clear enough for North Carolina Legislature then we can ask the Supreme Court to explain it which they did in 1986 in Quill vs. North Dakota. In this case North Dakota attempted to collect taxes from Quill Corps catalog sales to North Dakota residents. Quill refused stating they have no point of business, no nexus in North Dakota. The Supreme Court agreed by saying that a taxpayer must have a physical presence in a state in order to require collection of sales or use tax for purchases made by in-state customers. Physical presence means offices, branches, warehouses, employees, etc. The existence of customers alone (i.e. economic presence) did not create sufficient nexus under the Commerce Clause for North Dakota to impose a sales tax collection burden on Quill Corp. That’s pretty clear to me unfortunately it appears the folks in Raleigh can’t read and have tried to do a go around this ruling by claiming Associates located in North Carolina do in fact constitute a nexus however here again they obviously have no clue.

Maybe I should explain briefly what an Amazon Associate is and how they make money through Amazon. An Associate has signed up with Amazon to provide links to Amazon products on the Associates’ Blogs, websites or other Internet content. When a visitor goes to an Associates’ website and clicks on an Amazon banner to purchase some product the Associate makes a referral fee. Where North Carolina sees some nexus in this process is unclear to me because the physical location of the Associate does not constitute one. The Associate did not process the transaction nor do they constitute a physical location for Amazon themselves as required by the  clearly defined Supreme Court ruling. I guess some explanation of how a website functions may also be in order as you may not be aware that a website can be located anywhere in the world no matter where the website owner is located. On top of this the various portions of a website such as a banner ad are likely to be located on various servers pulled from various locations. Case in point is this website where we are pulling content from multiple locations and servers to populate the side bars or if that wasn’t clear enough the image below is not located on our server and is in fact located all the way across the country from our server:

This image is of course the signing of the Constitution, something the North Carolina Legislature and Governor appear to think never happened. This image is not located on this server and helps understand that location of a server does not constitute presence. Now back to how this relates to the Associates program and “digital click-throughs” when a website serves up this Amazon banner the banner itself is being pulled by the end user from the Amazon servers located throughout the US. If a user then clicks that banner they are taken to Amazon’s servers to review the product and make any purchase, the Associate and his/her web server IS NOT processing any transaction! The relationship of the Associate and Amazon is no different than if you knew a business owner of a hotel on Hilton Head. You told your uncle about the hotel and they went and stayed there. The next time you visited your friend’s hotel he knew about the referral you got him and decided to knock off 15% of your bill. Feeling great about the savings you come back to North Carolina only to find the guys in Raleigh have sent you a sales tax bill for your uncle’s stay on Hilton Head because you had referred them. Sounds a touch stupid doesn’t it, so does this attempt to tax Amazon Associates.

Let me again reiterate that this not only sounds stupid but it is clearly against the US Constitution and the US Supreme Court has already ruled verifying no state can collect tax on sales from any business that does not have a nexus within the state. What is probably even stupider is the Legislature is working on the premise that trying to tax these sales will result in some $13 million in revenue as it appears they are looking to apply this to such things as iTunes, paid website subscriptions and even radio broadcast advertising. Unfortunately as they can’t balance the budget they are counting some some $13 million which will not ever appear as businesses like Amazon have just closed the door. As these proposed added sources of tax close their doors to North Carolina residents there will be no $13 million in revenue and instead North Carolina will be spending tax payer money it doesn’t have to defend itself in court as surely one or all of the businesses or maybe even the Associates themselves files a case against this unconstitutional tax.

Of course this ignorance is being lead by the Democrats in Raleigh with one of the lead tax writes, Senator David Hoyle stating in reference is residents of North Carolina properly filing their Use Tax forms for purchases made online:

“You know how that works,” Hoyle said. “Nobody does it.”

If someone pays taxes on a book purchased at a brick-and-mortar store in the state — which generates land, sales and income taxes — online retailers ought to be willing to collect taxes as well.

“It ain’t fair,” Hoyle said

Well Senator there are a lot of things that “ain’t fair” but being fair and following the law are two different things. Just because you feel the residents of this state are not following the law and filing the required taxes has nothing at all to do with trying to unconstitutionally tax a company in another state. Heck half of New England drives through North Carolina on their way to Florida and back each year, shall we start sending them income tax bills because they drove through the state? The Furniture Show although diminished still draws a large number of buyers from across the country should we start charging all those businesses for each retail sale they make to their customers based on the fact they visited High Point, wonder how long the trade show would last if that was the case?

Sources: (News & Record, Tax Foundation, Wikipedia)

Be Sociable, Share!

• 

This entry was posted on Friday, June 26th, 2009 at 11:03 am and is filed under Business News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.