Federal Intervention For Online Sales Tax Gains Momentum, California Affiliates Lose Their Heads

The gears of tax reform continue to turn, not only in the nation’s capital, but also along the Pacific. In Washington a series of bills are being considered, including the Digital Goods and Services Tax Fairness Act. This bill, supported by Amazon among others, would not only clarify taxes across state borders, it would also bring clarity to digital goods. Currently digital goods are taxed at telecom rates of 18-20% instead of rates which a typical 6-10% which a consumer would pay if they bought the same item in physcial form. It’s becoming more obvious that reform is needed, and fortunately a concensus is growing in equal proportion.

Moving to California, the passing of state sales tax laws there is causing Amazon to give the axe to 10,000 affiliates to avoid paying the sales tax. As more of these bills are passed, aside from the tax issues, some questions emerge around the affiliates. If this saga stretches out, the competitive landscape is thinning out so that states with strong affiliates are now gaining a big advantage. Additionally, questions have to emerge at some point if Amazon will feel the effects of this as their marketing network is changing. It’s not likely this will affect Amazon’s top line revenue based on their extensive and aggressive marketing operations, but at some point it should encourage shifts in strategy where gaps are opening up in driving sales.

July 6th, 2011