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Matt Enders was one of about eight small business owners lobbying legislators Tuesday against what's being called the "Amazon tax." He says his business, and those of thousands across the state, could be ruined if the state tries to collect taxes from online shoppers.
Enders runs an affiliate marketing management company out of an office in Cary. Affiliate marketing is when a business rewards affiliates, or partners, for traffic generated through the affiliates' websites or blogs.
"You have a blog that gets traffic and you want to monetize some of that traffic by referring your unique visitors to some merchant through what's called affiliate marketing," said Enders. "You send your traffic there and every time your traffic makes a purchase, you get a commissioned sale."
Enders says affiliates range from individuals who make a few hundred dollars a month in commissions to large companies with multiple employees. Through "click through" buttons on their websites, they help generate traffic for online merchants like Amazon.com and Overstock.com. The merchants avoid paying sales tax by not having a physical presence in the state, and buyers benefit from saving a few dollars on each purchase.
But Senator David Hoyle, co-chair of the Senate Finance Committee, says it's not fair, especially when the state is in a budget crisis. Sales tax from Amazon.com alone could run as much as $13 million a year.
"We're talking about hundreds and hundreds of millions of dollars that's due to the state of North Carolina that we're not collecting and it's not right," he said. "It's not fair to Books-A-Million, it's not fair to Belk, or these other retailers who have mortar and investment and employees in this state that are collecting the sales tax from the merchandise that they sell."
New York's decision to begin collecting the tax in 2008 was immediately challenged by on-line retailers. A Supreme Court ruling in January 2009 upheld the on-line sales tax in that state, saying that using affiliate marketers who live in New York constitutes a physical presence or "nexus" in the state and thereby justifies the sales tax.
At least ten other states are now considering a tax, and a longstanding movement to create a "streamlined" tax nationwide is regaining momentum in Congress.
"It's a legitimate tax that is owed to this state," said Hoyle.
Enders and his colleagues argue the anticipated revenue will be offset by the loss of business for affiliate marketers, who he says number in the tens of thousands in North Carolina. He points to companies like Overstock.com that have terminated contracts with affiliates in New York.
Senator Hoyle said while he sympathizes with small business owners, he believes on-line retailers aren't willing to give up the revenue, even if it means paying tax.
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By Roland on 07/02 07:24 PM
John Shaw, you must be related to one of these politicians, because you are not listening even though i wrote it. If a local business is selling anything that can be bought in the internet, then they are competing with the rest of the country, and in certain criteria of business, they may not be at all. In other words cant. Your argument may be, not so because of related shipping costs with online stores, waiting as opposed to just walk in an buy, etc., but that has changed dramaticlly over the last 3 yrs alone. Shipping companies like UPS, FedEx and a great deal of frieght liners has extended tremendous discounts for these online distributors, as much as 75% off the normal rates that all else pays. The local business has much more overhead on average with the out of state online distributors that will ship directly from manufactuer in most cases. These online dist. get far more better pricing than the poor local business, Amazon has proven that. I think we all need to look at a much broader picture. We need to look at short term future and not whats happening now or plan for 20 yrs to come. We need to ask what is the most obvious sequence to this issue, if you can see what I already see, then you understand, but if cant see the direction where this online businesses is going, then we and our brick and morter that pay our taxes, give people thier chance with labor, will be no more.
By Jason on 07/02 05:38 PM
John, How is raising taxes encouraging businesses to invest here? Companies like National are not collecting sales tax from buyers in other states and handing it over to each state government, are they? Why should Amazon not be given the same 'level playing field'? They chose to be in WA and the other states they have a physical presence in - the same way Lexington chose to be in NC. Under the current law, that's fair. Lexington is not prohibited from doing the exact same thing Amazon is doing. The bottom line is that this tax looks good on the outside, but is full of worms on the inside, including the loss of income for thousands of affiliate advertisers - which will lead to the loss of income tax revenue for the state, since Amazon is obviously not bluffing. Amazon is not the only company who is turning their back on this state. Why pass a tax when nobody will win?
By John Shaw on 07/02 05:18 PM
Roland, The current scheme hurts businesses in NC. If a business has a "brick and mortar" store, a call center, a computer, or a warehouse in the state, it must collect the sales tax. If a business has no such physical presence in the state, it does not collect tax. Local small businesses (such as National in Lexington, an Internet based clothing retailer) as well as other businesses that maintain warehouses in the state are put at a disadvantage. Why should we require sales tax collection by local businesses, and those that hire local people and make investments here, but not require the same tax collection by businesses that do not make any investment or hire people in the state? We should encourage businesses to make investments here, not discourage them. The tax law changes proposed will help to level the playing field and help local businesses compete with out of state businesses.
By John Shaw on 07/02 05:10 PM
Fred, If you believe that it is fair to require bn.com to collect sales tax but exempt Amazon, or if you believe that it is fair to require the small store to collect sales tax on toilet paper but not require sales tax to be collected on mail order books from certain retailers, or if you don't see any need to have fairness in our tax system, then perhaps we would be better off if you did leave NC. Our gain is their loss.
By Roland on 07/02 04:22 PM
this state has been suffering with its political leaders since day one, it appears that trend has not ceased. Continuous attacks on local businesses in this manner without any kind of positive structureing, is just plain irresponsible. NC needs to promote more businesses, not more taxes. More businesses you get more taxes, less busineses less taxes, a child knows this for gods sake.
By Fred Waters on 07/02 02:46 PM
Fair or not, if this tax goes through I am pulling out of North Carolina and moving to Tennessee. Say goodbye to my income tax, property tax and countless other taxes I pay in this state. Your loss will be Tennessee's gain.
By John Shaw on 06/28 10:20 AM
Many on line retailers have to pay sales tax. Order a book from bn.com or clothing from National (www.shopnational.com) and you will pay sales tax. Why? Because those companies have a physical presence in NC. Why is it fair to charge sales tax on purchases from bn.com and national, but not charge the same tax on purchases from Amazon.com? Even if Amazon does cut off affiliates in NC, they will still sell books to NC residents, and NC based websites will still have revenue from the many other affiliate programs, such as the Barnes & Noble program. This will not hurt small businesses. It will not reduce the sales to Amazon. But it could help save the jobs of many teachers and other state employees.
By fed-tax.net on 06/25 06:09 PM
Senator Hoyle is right: Sales Tax should be collected by online merchants, just as is required of physical merchants. A sales tax, approved directly or indirectly by the voters of North Carolina per the laws of that state, to pay for North Carolina police, fire and hospitals, can and should be collected by merchants large and small, from the residents of North Carolina. This is taxation with representation at its best. This is not the same as the affiliate marketing (complex nexus) approach discussed in the article. A challenge with the complex nexus tax if it takes hold is that North Carolina dollars may be collected at California or New York state tax rates, by California or New York affiliates, to pay for services for Californians or New Yorkers. Sales tax, in many places, is the law of the land, and the privilege of a computer, a credit card and an internet connection should not exempt a purchaser from that obligation. This is not the same thing as redefining place of business to include contractual relationships with out of state entities.
By Don on 06/25 01:14 AM
I recently moved to NC and have just now gained my in-state residence status for college after a year. No pell grant and tuition cost 5x normal price. Affiliate marketing has been with me for several years and I am about to launch one of the largest campaigns to date. This money helps me pay to live and pay for school. I CAN NOT believe that they are even considering doing this to everyone that has worked so hard to get there business on a level that will help support them in these horrible economic conditions. I also CAN NOT BELIEVE that they have the nerve to use the words "it's not fair"! Well, I can scroll off a list of stuff that's "not fair" if I wanted to whine like a little baby. I have debt too and I don't have anyone to legally steal from. If this bill passes, I will be one of the first on the list to leave this state and I hope everyone else does the same thing! The major online retailers will pull the plug because they know the deal. So, my guess is that the state is going to end up in worse shape than it's already in. Thanks for kicking us when we are already down! This really is the LOWEST blow I have ever experienced! Good luck with the re-elections! I will be sure to vote for "the other guy" and then move away...
By LC in Cary on 06/24 06:50 AM
It boils down to GREED! There is plenty of tax money being made by the state when Fed Ex, UPS etc. pay their income tax on all the profits from shipping that online purchases generate. What's next- Taxing the air I breath- oops did I just give them an idea?
By Kayla on 06/23 11:04 PM
Last time I checked, 7% of zero was still zero. If Amazon pulls the plug on their affiliates here, that's what NC will get in taxes. BUT - the affiliates will no longer have to pay income tax - because they won't have income. Brilliant.
By Jason on 06/23 10:47 PM
"It's not fair to Books-A-Million, it's not fair to Belk, or these other retailers who have mortar and investment and employees in this state that are collecting the sales tax from the merchandise that they sell." he says? What's not fair is ruining a system that WORKS. What's not fair is taking income from thousands of affiliate in North Carolina. What's not fair is seeing this as income for the state and not a tax on individuals. What's not fair is how, with every new and raised tax, this state becomes less and less appealing to businesses and the people who already live here. Sen. Hoyle, thanks for your sympathy, but I don't need it. It'll be you who needs it when you realize Amazon is not bluffing.
By Geoff on 06/23 09:28 PM
Look what happened to New York. 200 affiliate programs were pulled from NY residents. I do a lot of consulting work for Amazon Associates in this state and if they pull out, the state will loose more the sales tax, they will loose income tax as well and money coming into the state that is spent on the local economy. NC Legislators are morons and the sponsor of the bill is the same moron that is going to give Apple a big tax break. I wonder if Apple gets to use that break on iTunes sales? Hmmm, corporate favoritism . . . why isn't the news following that lead?
By Brenda on 06/23 08:48 PM
As a person who currently lives in a sales tax free state I find it appalling that North Carolina is trying to run small businesses out of their state. Small business are the BACKBONE of America. Government has gotten too big with too many entitlements. It's time to scale back the size of government and the entitlement handouts with hardworking taxpayer money! I vote NO on this repressive tax.
By Scott on 06/23 08:46 PM
I for one think that if prices in NC business were more competitive then less would flock to the web for purchases. I recently wanted to purchase a piece of high end audio equipment right here at home in Raleigh, NC but nobody in town could sell it to me as cheap as an online avenue in California. It was close to half the price of the big box stores and the locals. We are in a recession but i still wanted the audio equipement so guess where i went!
By Painter Jr on 06/23 08:38 PM
NC is going to shoot itself in the foot with this. Not only will NC not get the tax income they expect with affiliate partners like Amazon pulling out, it will lose the income tax income from the NC businesses that earn an affiliate income and their employees. Unemployment rate in the RTP area is already at a record high level, please reconsider and support local business owner's and not force them to leave. Affiliates are not \"nexus\" for these companies. Do not impose taxes. Amazon.com is already dropping NC affiliates, which equates to a loss of a stream of revenue ... which equates to less money being circulated in the NC economy. That\'s obviously a bad result. Do not require companies who have an affiliate program to pay NC state taxes. It would be a very poor decision if you do.
By Kent on 06/23 08:33 PM
Jimmy Oakley said 1 day ago (unverified) If this legislation passes, all NC Amazon affiliates will be removed from the program. I, as well as thousands of other North Carolinians will be severely injured financially as a result of the passing of this legislation. I absolutely support this partition to vote NO against this unfair and unnecessary tax.
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