Yeah, They’re the Taxmen!

June 21st, 2013 | Posted in General

I received this email from Amazon.com the other day:

We are writing from the Amazon Associates Program to notify you that your Associates account will be closed and your Amazon Services LLC Associates Program Operating Agreement will be terminated effective June 30, 2013. This is a direct result of the unconstitutional Minnesota state tax collection legislation passed by the state legislature and signed by Governor Dayton on May 23, 2013, with an effective date of July 1, 2013. As a result, we will no longer pay any advertising fees for customers referred to an Amazon Site after June 30 nor will we accept new applications for the Associates Program from Minnesota residents.

Please be assured that all qualifying advertising fees earned prior to July 1, 2013, will be processed and paid in full in accordance with your regular advertising fee schedule. Based on your account closure date of June 30, 2013, any final payments will be paid by August 30, 2013.

While we oppose this unconstitutional state legislation, we strongly support the federal Marketplace Fairness Act now pending before Congress. Congressional legislation is the only way to create a simplified, constitutional framework to resolve interstate sales tax issues and it would allow us to re-open our Associates program to Minnesota residents.

We thank you for being part of the Amazon Associates Program, and look forward to re-opening our program when Congress passes the Marketplace Fairness Act.

Sincerely,

The Amazon Associates Team

Just to be clear, the Amazon Associates program is one where you sign up and review, advertise, or otherwise promote, products complete with links to purchase said products through Amazon.com. What you get is a tiny percentage of the sale as a commission, and Amazon does the shipping and everything just as they would had they purchased the same product without going through your link. If you go to the very bottom of my blogroll on the right of the screen… go ahead, I’ll wait… that is one way of participating in Amazon Associates. This in no way interferes with my selling my books wholesale to Amazon.com, and for anyone to buy them through Amazon. All it does is eliminates the commission program for online marketers from Minnesota.

Why? Well, the state of Minnesota (and a few other states, there are so far ten others with similar laws on the books) is apparently desperate to get sales taxes out of internet sales, and will jump on any loophole, regardless of how ridiculous, to do it. In this case, they are insisting that anyone located in Minnesota who is getting a commission through linking to online sales sites constitute having a “physical presence” in the state by the company fulfilling the sales, like Amazon.com and their Amazon Associates. Therefore they are demanding Amazon collect and fork over Minnesota state sales tax on every sale they do through that linking/commission service. It doesn’t matter where the item ships from, or the actual location of the buyer (which could be anywhere), they want their money…just because the link came through a website owned by a Minnesota resident. Very logical… if you live on Bizarro World.

Minnesota isn’t doing very well when it comes to internet sales and sales taxes in general, as I have come to discover the hard way selling my book online. If you are an internet seller located in the state and you sell to a buyer who is also a Minnesota resident, you have to collect and pay the sales tax on that order. No problem there, but the geniuses in state government decided you have to pay the sales tax rate attributed to the address of the person BUYING the item, not you the one selling it. For example, I sell my book online. If a Minnesota resident buys a copy, I have to calculate their sales tax based on the rate attributed to their address. That means for every in-state sale I have to manually go to a Minnesota revenue website where I enter the buyer’s zip code and the current sales tax rate is displayed. Sales tax rates change a LOT in this state, which some areas and counties collecting various local taxes to pay for stuff like sports stadiums, convention centers, transit, etc., so there is no consistency. But it gets better! The website requires a 9 digit zip code. So, I first have to convert the buyer’s zip code to a 9 digit one by going to a USPS website and entering their address, city and state. Once I get that information entered and determine the tax rate, I enter it into a spreadsheet I created that calculates the actual tax that is supposed to be collected on a given sales total. Then, I go to the PayPal transaction and refund the difference between what I figured out is correct and the 8% I automatically charge as a estimate on every MN sale, since PayPal can’t calculate the local sales taxes automatically. Then I pay in monthly to the state any sales taxes I have collected, which requires me to have a state sales tax number, etc. Yes, it’s as convoluted as it sounds. It’s not that big a hardship for me because I only sell a few copies to MN residents now and then, and already have a sales tax account through my Mall of America operations and make monthly sales tax payments, so I just add these books sales to my monthly payments when they happen. I can’t imagine what I would do if I did a large volume of in-state sales. I’d have to hire someone to do the sales tax processing. It’s ridiculous.

Likewise the elimination of the Amazon Associates account won’t hurt me much. I maybe made enough in commissions a year to buy a nice dinner out for The Lovely Anna and I (better than at a Denny’s but not as fancy as a Ruth’s Chris), but that’s money I WON’T be paying Minnesota income tax on. Not a big loss for MN, but I also won’t be taking Anna out to that dinner, here, in Minneosta, where it would get taxed and pay for someone’s employment. There are many independent online businesses here in the state that DO generate a lot of income through these sorts of programs. According to an article on this in the local paper, Minnesota has about 5,200 affiliate online marketers earning about $500 million a year and who paid $35 million in state income tax in 2012. Most of that money is now gone, and not just the income tax that goes to directly to the state. Odds are a great portion of that remaining $465 million in earned income is being spent in Minnesota, since that’s where the people earning it live. If even half of it is spent in-state on taxed goods, that’s a whopping $16.2 million in sales taxes the state won’t be collecting, which adds up to a total loss of $51.2 million in revenue for Minnesota. The Minnesota state revenue folks estimate that with the new law implemented they will realize about $5 million in new sales taxes from those who won’t do what Amazon is doing. That’s a net loss of $46 million. Way to go, Minnesota legislature… that’s known as cutting off your nose to spite your face. You would think those people at the state capital would have a few calculators available for their use… apparently not.

Frustrating. I agree that there should be some national sales tax program that would apply to online sales, but they need to make it easy to comply with and fair across the board. These solutions are not that.

Comments

  1. Thanks for the article Tom. I’m planning to launch a Kickstarter soon. If it succeeds, it looks like I have several fun hours ahead of me trying to figure out how much sales tax I’ll owe.

  2. A. Maybe they should do this for all sales, so that, if you go to a store in Minneapolis but live in Northfield, the clerk has to collect tax based on Northfield’s rates. That would only be logical, right? Laws gotta make sense.

    B. Thank god I live in New Hampshire, where we’ll pass a sales tax about a week after we pass the law confiscating everybody’s guns.

  3. jailerjoe says:

    Thanks for breaking it down, Tom. What an unnecessary headache! Government’s gotta get back to the ‘KISS” principle.

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