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On Wednesday, June 17th, Amazon.com sent an “Important Notice from the Amazon Associates Program” email to all affiliates in North Carolina (for full disclosure, I have Amazon Associates Program account that I use for testing). While Amazon.com is not terminating North Carolina-based affiliates, they intend to if the proposed legislation is passed in its present form.

We regret to inform you that the North Carolina state legislature (the General Assembly) appears ready to enact an unconstitutional tax collection scheme that would leave Amazon.com little choice but to end its relationships with North Carolina-based Associates. You are receiving this e-mail because our records indicate that you are an Amazon Associate and resident of North Carolina.

Please note that this is not an immediate termination notice and you are still a valued participant in the Associates Program. All referral fees earned on qualified traffic will continue to be paid as planned.

But because the new law is drafted to go into effect once enacted – which could happen in the next two weeks – we will have to terminate the participation of all North Carolina residents in the Amazon Associates program on or before that same day. After the termination day, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com nor will we accept new applications for the Associates program from North Carolina residents.

The unfortunate consequences of this legislation on North Carolina residents like you were explained in detail to key senators and representatives in Raleigh, including the leadership of the Senate, House, and both chambers’ finance committees. Other states, including Maryland, Minnesota, and Tennessee, considered nearly identical schemes, but rejected these proposals largely because of the adverse impact on their states’ residents.

The North Carolina General Assembly’s website is http://www.ncleg.net/, and additional information may be obtained from the Performance Marketing Alliance at http://www.performancemarketingalliance.com/.
We thank you for being part of the Amazon Associates program, and we will apprise you of the General Assembly’s action on this matter.

Sincerely,
Amazon.com

Aside from labeling the proposed legislation as an “unconstitutional tax collection scheme,” there is little indication of what has motivated the online sales behemoth to act. While the email including a link to the North Carolina General Assembly, it conveniently neglects to link to either version of the Bill directly, or even include the numbers for easy lookup (House Bill 558  and Senate Bill 487), suggesting they don’t want their affiliates to know what Amzaon.com opposes the legislation.

The email did include a link to the Performance Marketing Alliance, Inc. website, a “trade association for the performance marketing industry.” The PMA spin is:

“Status: Nexus Legislation is probably part of the overall budget buried in the Senate tax bill, which may pass later in the month. However, the House is committed to not raising taxes of any kind. AB 178/ H 558 (the bill to modernize Sales Tax Stat/ Digital Goods) may have at one time had the e-commerce legislation in it, but it has been taken out and pooled with other tax issues in the budget package. The senate has been quiet on the specifics of what will be included in the package.  They adjourn in early July. We will keep you posted on any action that might be needed by the affiliates, but for now, we are waiting for more information.”

The full title of House Bill 558 is “An act to modernize the sales and use tax statutes by treating music, movies, books, and computer software that are delivered electronically the same as those that are purchased in a tangible medium and by revising the "mail order" sales tax provisions to include specific references to internet sales.”

This seems to be getting us closer to the heart of the matter. In these tough economic times, the NC General Assembly appears to be seeking new sources of revenue, and taxing electronic downloads, including music, movies, and books, product areas Amazon is focusing sales on.

How does this apply to affiliates? "§ 105-164.8. outlines a “Retailer's obligation to collect tax; mail order remote sales subject to tax.” The bill would insert the following into the existing law:

“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.”

The way I interpret this (full disclosure: I'm not a lwayer), Amazon Associates would meet the requirement of “independent contractor, agent, or other representative,” and would thus classify Amazon.com as a company engaged in business in the State, and be required to collect sales tax for all sales to customers in North Carolina. Based on my quick read, I’m not sure if this would only apply to downloads, or physical items as well, but either way, my guess is Amazon wants to get out of collecting sales tax.