Illinois governor Pat Quinn is considering whether to sign into law a tax bill that includes a new tax on online retailers, the so-called Amazon Tax. Until now, online transactions are not taxed in states where the retailer has no physical presence (with a few exceptions.) The new measure would end this in Illinois, treating Amazon as an Illinois retailer so long as one of its online affiliates is based in the state. (Every state has thousands of online affiliates.)
Amazon is responding by playing chicken. From Presh Talwalker:
So Amazon is fighting back at Illinois with a threat. Amazon has emailed its commissioned affiliates the following message:
We regret to inform you that the Illinois state legislature has passed anunconstitutional tax collection scheme that, if signed by Governor Quinn, would leave Amazon.com little choice but to end its relationships with Illinois-based Associates. [emphasis mine]
The following logic seems to explain the motive. If Amazon ends its affiliate relationships in Illinois, then it would have no physical presence in the state, and hence it would get around the bill.
The email levies harsh criticism at Illinois and is meant to garner sympathy. In reality, the move is calculated and strategic.
Amazon is threatening all affiliates on purpose – even though it doesn’t have to. Here is an interesting tidbit the Chicago Tribune reported:
The bill applies only to affiliates that have at least $10,000 a year in revenue. But if large retailers, such as Amazon, cut off all affiliates in Illinois, it would end commission streams to small Web sites, such as bloggers, who might sell Amazon goods at their sites. Amazon could not be reached for comment.
Amazon is playing a classic retaliatory strategy. If Illinois wants to pass this law, then it will do everything to hurt the state and even otherwise innocent and small-time bloggers, who might decide its time to complain to Gov. Pat Quinn.
There’s more in Presh’s article here. (Amazon seems to understand reputation building because it carried through with its threat in Colorado when that state passed a similar measure.)
My view is that the threat is credible even ignoring reputation-building. The lost revenue from sales tax would dwarf the losses from cutting off affiliates.
Cheap Talk 
4 comments
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January 10, 2011 at 6:44 pm
Gimlet
Or perhaps Amazon doesn’t currently monitor the amounts it pays to affiliates and doesn’t want to start – by cutting everyone off, it avoids having IL get a “gotcha” if an affiliate goes over $10K (and the cost of doing an audit to see which affiliates pose more or less risk of hitting that threshold).
January 10, 2011 at 8:53 pm
Laura Schofield
I’m a stay-at-home mom of 4 who has been earning money as an online publisher through my affiliate earnings. This kept my family afloat while my husband was unemployed for 2 years. We’re trying to dig ourselves out of the debt caused by his unemployment. If this gets passed, I’m going to be out of business overnight, which is not good.
I believe the $10,000 limit concerns all Illinois sales of the actual vendor and not the affiliate. This applies to ALL merchants selling goods online and having an affiliate program, not just Amazon. Thus, people like me who feature unique goods from small shops are likely to get hit the worst by this. My small, out-of-state advertisers will be the first ones to drop me, rather than have to calculate and collect IL sales tax on their sales.
Even National Geographics NOVICA, fair-trade world goods shop has dropped affiliates when similar legislation has been passed in other states. I’d basically have to rely on advertisements for national companies like Target, or those who already have a physical presence in Illinois. That is discouraging for someone like me who writes about green products and organic foods.
This bill would provide NO Use tax income as all merchants with no presence in Illinois will carte-blanche sever relationships with all Illinois affiliates to avoid having the tax collection implications. Bigger online Illinois businesses will relocate out of state or drop staff due to reduced advertising revenues. Independent publishers like myself will go out of business. And no taxes will be collected, since all relationships will have been severed and no one will be obligated to collect Illinois Use tax.
I’m not opposed to online merchants collecting sales tax, but it needs to be implemented at a federal level. When you handicap a specific, limited group of people as a tax liability, it creates a hostile business environment that can only be avoided by leaving the state. If this was done nationwide it would net sales & use tax $$, but done like this it will only lose jobs. Job loss is not what we need right now.
January 16, 2011 at 11:13 pm
Adam K
Just wanted to say that Laura S had a great comment, well thought out.
July 31, 2011 at 2:21 pm
info@reclaimsuk.co.uk
Laura S did have a good comment… 🙂