Amazon Affiliates Screwed: Colorado Law HB 10-1193

Amazon Affiliates Screwed: Colorado Law HB 10-1193

Amazon Affiliate Marketers and all who use affiliate marketing worldwide took a major blow to their income today. Why is Colorado Law HB 10-1193 a major setback for small business and entrepreneurship not only in the state of Colorado but worldwide? Let me explain some really basic business principals. Here's the basics.

The problem:

Colorado has a huge budget deficit. They desperately need to increase their income. Someone suggest that if they could collect sales tax on sales made to Colorado residents by internet companies such as Amazon, they could generate revenues to help their budget problem.

The Obstacle:

Internet companies like Amazon don't have a business presence in the state of Colorado and therefore are not subject to collecting and paying Colorado sales tax.

The Solution:

Colorado declares law HB 10-1193 which states any company who has an affiliate marketer that generates over $10,000 of income for that company is a legal agent of that company and thus the company has a presence in the state and must collect and pay sales tax. An affiliate marketer is a person who gets paid a fee for referring business to another company. For example, if I am an Amazon affiliate and I recommend a book and refer you to Amazon to buy it, I could get a referral fee for that sale.

The Result:

Amazon fires all its affiliate marketers who reside in Colorado. They continue to sell to Colorado residents directly and through affiliate marketers who reside in other states. The group who is hurt the most is the small business owner who was putting food on the table and a roof over their family's head via affiliate marketing. The other one hurting is the State of Colorado because they now loses the personal and business income tax they would have derived from the resident affiliate marketers. The state also forgoes the income from sales tax. Everyone loses, even Amazon. There are a number of reasons that HB 10-1193 was a stupid law. That's right it was downright ignorant of the lawmakers to pass HB 10-1193. First, an affiliate has no control or say in the company's business. They get paid as a 1099 relationship. They simply refer customers to another company. It's a form of marketing and advertising. Second, HB 10-1193 forces an undue burden on the producer of the good and services. As a small business owner and the only employee, I have used affiliate programs to promote my goods and services. It is an effective means of generating awareness for many reasons. According to the new law, if my company is based outside Colorado, but one of my affiliates is based inside Colorado and happens to have referred 10 people who bought my $1000  widget, I now have to figure out how to collect and file sales tax in the state of Colorado. Yoohoo Colorado, it's not worth my time. I too would do what Amazon is doing and simply ban all affiliates in the state of Colorado. I'll have my out of state affiliates refer that business to me or simply forgo income from Colorado. Hate to tell you, but Colorado adds a small amount of revenue to an internet company's bottom line compared to other states. The third reason HB 10-1193 kills small business in Colorado is that if I am now the affiliate marketer residing in Colorado, not only have I lost my income from Amazon, but I have now lost it from all the other companies with which I have an affiliate relationship. So, not only have I lost my income, but Colorado has lost the revenues from my income tax. Fourth, How the heck are they going to enforce HB 10-1193? It's going to take a lot of resources to identify who is an affiliate that generated over $10,000 of income and for what companies did they achieve this and did that company collect sales tax for those particular sales? Obviously, no one really took the time to think HB 10-1193 through. Either that or there's a lot of stupid idiots voting for this bill.

The can of worms:

I'm not sure but I would think that anyone who participates in a traditional  MLM business would also be subject to this new law. What if those companies also ceased to operate in Colorado? What then?

What you can do to help:

If you are an affiliate marketer in Colorado or know someone who is, you may express your views of Colorado's new law to members of the General Assembly and to Governor Ritter, who signed the bill HB 10-1193. If you are a company that uses affiliates that may be based in Colorado, please let them know what has transpired and direct them to members of the General Assembly and to Governor Ritter. Here's Amazon's announcement to affiliates…

Dear Colorado-based Amazon Associate:We are writing from the Amazon Associates Program to inform you that the Colorado government recently enacted a law to impose sales tax regulations on online retailers. The regulations are burdensome and no other state has similar rules. The new regulations do not require online retailers to collect sales tax. Instead, they are clearly intended to increase the compliance burden to a point where online retailers will be induced to "voluntarily" collect Colorado sales tax — a course we won't take. We and many others strongly opposed this legislation, known as HB 10-1193, but it was enacted anyway. Regrettably, as a result of the new law, we have decided to stop advertising through Associates based in Colorado. We plan to continue to sell to Colorado residents, however, and will advertise through other channels, including through Associates based in other states. There is a right way for Colorado to pursue its revenue goals, but this new law is a wrong way. As we repeatedly communicated to Colorado legislators, including those who sponsored and supported the new law, we are not opposed to collecting sales tax within a constitutionally-permissible system applied even-handedly. The US Supreme Court has defined what would be constitutional, and if Colorado would repeal the current law or follow the constitutional approach to collection, we would welcome the opportunity to reinstate Colorado-based Associates. You may express your views of Colorado's new law to members of the General Assembly and to Governor Ritter, who signed the bill. Your Associates account has been closed as of March 8, 2010, and we will no longer pay advertising fees for customers you refer to Amazon.com after that date. Please be assured that all qualifying advertising fees earned prior to March 8, 2010, will be processed and paid in accordance with our regular payment schedule. Based on your account closure date of March 8, any final payments will be paid by May 31, 2010. We have enjoyed working with you and other Colorado-based participants in the Amazon Associates Program, and wish you all the best in your future. Best Regards, The Amazon Associates Team
 
 
UPDATE April 2012
 
A federal court in Denver has struck down this law declaring the 2.9 percent tax on purchases unconstitutional on the ground it was tilted unfairly against out-of-state retailers, and that it put an undue burden on retailers to either collect the tax owed by consumers or report consumer purchases to the state.
 
To read a detailed article in the Denver Business journal, click here.
 
About Debra Zimmer

After 25 years of growing entrepreneurial businesses at companies such as Microsoft, where she attracted 700,000 members into an online community in 18 months and then grew a second one to 250,000 members in 10 months, Debra Zimmer then struck out on her own to grow an online retail store to 6-figures of income and put it on AUTOPILOT for 3 years. With an engineering degree and an MBA from Columbia Business School, Debra is the undisputed expert in helping experts, entrepreneurs and executives to focus their brilliance and magnify their impact using social media and internet marketing tactics.

Comments

  1. Hi Debra,

    I found this post on Twitter and have to say this is the best explanation of HB10-1193 I have found.

    I am also in Colorado and received the Amazon email. Although I am not a big Amazon affiliate, I am heavily invested in other affiliate networks. If other affiliate networks follow Amazons lead, it will have devastating effects on small business entrepreneurs in Colorado.

    I have emailed Governor Ritter and am trying to find how my district representatives voted so I can let them know what a foolish mistake they have made.

    Being in northern Colorado, southern Wyoming wouldn’t be that far of a move, and is sounding more and more attractive as a place to live.

    Mike

  2. Mike Elings says:

    Thanks for the great post. I am one of the “fired” Colorado Amazon Associates. I am new to the assoicate world and was quite suprised that this was coming. The email I recieved this morning at 1:00 am from Amzaon terminiating my Associates account is the first I heard of it. Of course, by the time I read the email I had already referred ten items to Amazon, which I am sure they will still ship :-).

    I too think this is a crazy law, but am somewhat disappointed that Amazon had not warned be that this was coming. Apparently, the 20-30 purchases a day I sent their way did not warrant a more timely response.

    I am now faced with findind a new way to sell books at http://www.APReviewBooks.com.

  3. Mary says:

    You are absolutely correct. Thank you for posting this.

  4. Thank you so much for explaining this in such a well thought out manner. I am one of those Colorado Affiliates and my business has been completely destroyed by this one foul act of a governing body who is supposed to be representing me.

    I’ve sent your explanation along with my own outrage to my representative. I hope other Coloradans will do the same.

    Thank you, Marilynn Hughes

  5. I am one of the unlucky small business owners who saw 25% of their sales go away this morning.

    All this has done is forced me to look at other states to incorporate in. Colorado has done no good in passing this laws.

    Because lawmakers cannot run their own books my family now suffers.

  6. This bill as I see it is not good for the people of Colorado. It is certainly not good for the retention of people and the sustainability of an already fragile economy. My god this could wipe out an internet marketer in one fell swoop. Ridiculous. Time to vote someone in with some business savvy. Everyone who voted for this bill should be published and we should vote the other side. Unbelievable. Michael Hughes Boulder,CO

  7. Michael says:

    I have to disagree. You are directing your anger at the wrong people. You should be mad at Amazon using you and others as a political pawn to line their pockets.

    http://www.youtube.com/watch?v=OXT7Fey8RiY&feature=channel

    Some great facts from a great legislator~

    1. Debra Zimmer says:

      @Michael, I am listening to this video response now from John Morse, Colorado Senate majority leader. I am disappointed that the lead lawmaker is responding with nothing but an emotional outcry. There are no facts. He uses the example of Lands End and Apple, but they have a physical presence in the state of Colorado. They have company owned retail outlets. Any company that has employees constitutes a physical presence in a state is subject to sales tax in this state. These are really bad examples as they are not a direct comparison to the Amazon situation. Amazon does not have any employees in the state of Colorado. They do not have a presence here.

      I am and have been an online retailer. If California or NY enacts this type of law, I am out of business. Why? Because I am not able to hire someone nor have the sophisticated computer programs required to monitor and comply with this new legal requirement. This isn’t just about Amazon. This is about the hundreds of thousands of companies that may follow suit and put all the home-based affiliate marketers out of business as well as the small business owners who will have to shut down operations because they can’t comply with the new laws.

      This video does not address any significant issues. This isn’t just about corporate America and Amazon. This is about us little guys trying to feed our families.

  8. Scott says:

    This has got to be the worst way to not raise tax money ever. I am an affiliate marketer and our state of North Carolina passed a similar ‘Amazon’ tax law. Rhode Island too!

    Other states following the lead are:

    California
    Connecticut
    Florida
    Hawaii
    Idaho
    Illinois
    Maine
    Maryland
    Minnesota
    Missouri
    New Mexico
    South Carolina
    Tennessee
    Texas
    Vermont
    Virginia
    West Virginia
    Wisconsin

    Could be on their books by June or July 2010.

    Mississippi defeated a version but Nevada’s has it in the budget plan. This stupid tax is spreading like wildfire.

    So far the best way I found to get keep my affiliate status is to form an LLC in a tax-free state like Alaska. They have no intention on passing sales tax law nor do they collect personal earnings tax.

    This just add another layer of cost to my business reducing the tax NC would otherwise collect. Way to go NC.

  9. earthmom says:

    This is so ridiculous. CO is seriously cutting off its own nose to spite its face – going after money they think they might get and losing jobs and income 10x greater in the meantime.

    These dumbass lawmakers created this deficit – they should have set up the state website as an affiliate and earned the money they need to balance the books!

    1. Debra Zimmer says:

      @ earthmom, Love it!

  10. Jonathan says:

    All of the email addresses posted below are publicly available online, so I don’t think it hurts for me to post them here. This is a list of the Colorado General Assembly’s email addresses, and the email I just sent them.

    suzanne.williams.senate@state.co.us, bruce.whitehead.senate@state.co.us, al.white.senate@state.co.us, reppaul@aol.com, mark.waller.house@state.co.us, edvigil1@gmail.com, glenn.vaad.house@state.co.us, lotochtrop@aol.com, abel.tapia.senate@state.co.us, max@maxtyler.us, nancy.todd.house@state.co.us, cohd58@yahoo.com, pat.steadman.senate@state.co.us, nancyspence@qwest.net, brandon@brandonshaffer.com, gail.schwartz.senate@gmail.com, senatorschultheis@gmail.com, mark.scheffel.senate@state.co.us, nwden34@yahoo.com, spencer.swalm.house@state.co.us, ken.summers.house@state.co.us, amy.stephens.house@state.co.us, john.soper.house@state.co.us, jerry@repsonnenberg.com, judy.solano.house@state.co.us, sue.schafer.house@state.co.us, christine.scanlan.house@state.co.us, chris.romer.senate@state.co.us, senatorrenfroe@gmail.com, su.ryden.house@state.co.us, jim.riesberg.house@state.co.us, ellen.roberts.house@state.co.us, joshpenry@gmail.com, joe.rice.house@state.co.us, kpriola@gmail.com,dianne.primavera.house@state.co.us, jack.pommer.house@state.co.us, cherylin.peniston.house@state.co.us, sal.pace.house@state.co.us, linda.newell.senate@gmail.com, rep.nikkel@gmail.com, john.morse.senate@state.co.us, murrayhouse45@gmail.com, shawnmitch@aol.com, joe@joemiklosi.com, repmiddleton@gmail.com, michael.merrifield.house@state.co.us, wes.mckinley.house@state.co.us, mcfadyen2002@hotmail.com, beth.mccann.house@state.co.us, mike.may.house@state.co.us, tom.massey.house@state.co.us, marshalooper@gmail.com, kevin@kevinlundberg.com, larry.liston.house@state.co.us, replabuda@yahoo.com, rep.kent.lambert@comcast.net, claire.levy.house@state.co.us, mike.kopp.senate@state.co.us, steve.king.house@state.co.us, james.kerr.house@state.co.us, andy.kerr.house@state.co.us, mike.johnston.senate@state.co.us, repkagan@gmail.com, john.kefalas.house@state.co.us, moe.keller.senate@state.co.us, repjoeljudd@joeljudd.com, electkenkester@hotmail.com, senatorhudak@gmail.com, mary.hodge.senate@state.co.us, dl.hullinghorst.house@state.co.us, ted.harvey.senate@state.co.us, rollie.heath.senate@state.co.us, cheri.gerou@gmail.com, jerryfrangas@earthlink.net, joyce.foster.senate@state.co.us, sara.gagliardi.house@state.co.us,bob.gardner.house@state.co.us, gardner@plains.net, cindy.acree.house@state.co.us,repdennisapuan@gmail.com, david.balmer.house@state.co.us, randy.baumgardner.house@state.co.us, debbie@debbiebenefield.org,laurabradford55@gmail.com, bob.bacon.senate@state.co.us, betty.boyd.senate@state.co.us, greg@gregbrophy.net, terrance.carroll.house@state.co.us, edward.casso.house@state.co.us, loiscourt@msn.com, repcurry@gmail.com, bill.cadman.senate@state.co.us, brian@briandelgrosso.com, mferrandino@yahoo.com, randyfischer@frii.com, dan.gibbs.senate@state.co.us

    1. Debra Zimmer says:

      @Jonathan, The letter is very well written. Thank you for making it easier to find the contact information. I had a hard time finding it myself. May others edit your letter to send for themselves? It sums things up very nicely.

  11. Jonathan says:

    People can definitely feel free to modify or replicate, as long as they put their own names on it.

    🙂

    Thank-you for your write-up of this Debra!

    Warmest,

    Jonathan

  12. Jed Caven says:

    @Cary & Scott,

    I hate to be the bearer of bad news, but simply incorporating your LLC in another state probably will not work. This dispute is essentially about jurisdiction. Under federal constitutional law a state can claim jurisdiction over an out-of-state entity only if the out-of-state entity meets the “minimum contacts” test. Amazon.com has no physical presence in Colorado, so Colorado is trying to bootstrap the affiliate marketing relationships to obtain “minimum contacts” between Amazon.com and Colorado, thereby establishing jurisdiction.

    You can incorporate your LLC somewhere else, but the bottom line is that your business is still here in Colorado. Your business’s physical presence in the state gives Colorado jurisdiction over the business. And by extension, Colorado would take the position that the affiliate marketing relationship extends that jurisdiction to Amazon.

    You’re going to have to move your business out of Colorado, preferably to a state that does not have a sales tax. Alternatively, you could move your business to a state in which Amazon.com already has a physical presence, e.g., Washington, and has submitted to the jurisdiction of the state.

    This has been the biggest cluster**** in recent history. The Democrats running our government are complete morons. Why any business owner would stay here in Colorado is beyond me right now.

  13. I am not a lawyer, nor am I an apologist for the state of Colorado or Amazon (I’m pretty much equally mad at both:-).

    When I first got my letter from Amazon, I immediately sent a letter to the Governor condemning it. Then (yeah, I know I did this in the wrong order:-), I read the bill, and I couldn’t find anything in it that targets affiliate programs. I also looked at an Emergency Regulation (39-26-102.3) and the relevant statutes referenced by both of them.

    As far as I can tell, the bill applies to Amazon (and other out-of-state sellers) regardless of whether they have affiliates in Colorado.

    The bill might be unconstitutional, and it is clearly unpopular, but I don’t see anything in it that justifies Amazon terminating its affiliates. If you look at the Amazon letter, you will see that they don’t actually say that the law targets affiliates. They say they don’t like the bill and that as a result they are terminating affiliates, but they never say that the law targets their affiliate program.

    What this discussion really needs is an independent assessment by a disinterested lawyer who understands Colorado law and can give a clear explanation of what this bill means. As much as I sympathize with the opinions expressed in this posting and the comments, I’m not convinced that we are on the right track simply condemning the state and not looking into Amazon’s response.

  14. Concerned Coloradan says:

    I just found out about this today as I was setting up my Amazon store.
    What a bombshell of a news this was.
    What the heck is the world coming to when we are now getting taxed on the internet and the possibility of regulation I’m sure is on the horizon.

    The fund managers of Wall Street and the governments of the states can’t manage a budget so now, they take it out on the small business owners? Ain’t right!
    I may have to move out of the state of Colorado as my sole income is generated by affiliate marketing and the possibility of earning a good check from amazon is wiped out.

    Too much government and regulations is a bad thing!

  15. It seems that you’ve put a good amount of effort into your article and I want to see a lot more of these on the Internet these days. I sincerely got a bang out of your post. I do not have a bunch to to say in reply, I only wanted to register to say fantastic work.

  16. Great job on this post Deb!! Also love all the responses… This is obviously a hot button for a lot of people. As local and national governments try to find their way through the current economic conditions, we will all need to stay on top of what’s going so they don’t torpedo the general economy (and businesses) in the process!!

  17. Greg says:

    Well, the devastation continues, I just received this email from about 50 Commission Junction advertisers. (CJ.com)

    “XXXXXX,

    Due to the recent tax laws regarding nexus involving online affiliate publishers in the state of Colorado (legislation known as HB 10-1193) we will no longer be able to accept new publishers from Colorado into our affiliate program.

    Additionally, we will be immediately terminating our relationship with any publishers located in Colorado that were already joined. We sincerely apologize for the abrupt interruption in the program if this affected your account directly. This, unfortunately, affects our ability to continue business with loyal publishers and we understand that we are losing valuable relationships due to these new laws.

    If you are a publisher located in Colorado, your publisher account will be closed as of May 18, 2010, and we will no longer pay advertising fees for sales referrals after that date. All sales made prior to May 18, 2010 will be credited to you and paid out in accordance with our regular schedule on June 10, 2010. Please accept our apologies and we appreciate your understanding. Hopefully in the future, these laws will be reversed in order to keep the networks diversified and growing.

    Kind Regards,

    XXXXXX

  18. Greg says:

    According to the state of Colorado, the law states that outside retailers have to notify the State of Colorado and the customer of what they spent, so that the state of Colorado can collect the money. It doesn’t make any difference if they have affiliates in the state or not, if they make any sales in the state, then they have to report the sale.

    http://cclponline.org/pubfiles/Amazon%20fact%20sheet%203_9%20final.pdf

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