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.
 

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