Just when you thought it was safe, the Advertising Tax legislation came back out of nowhere a few weeks ago and appeared as line items in the state budgets for North Carolina, California, and other states. Both budgets are still pending, but this didn’t stop Amazon from making good on their threat to drop all of their associates in North Carolina. It’s not too late to act if you are from California or North Carolina.
Watching the publisher-residents of these states fight this legislation after it already has strong momentum has been both inspiring and disheartening. How legislators can propose and pass laws that destroy small business while the merchants that it targets can dodge it (by destroying said small businesses) is beyond me.
It is time to get proactive about this and send an email to my own state representative and senator, just in case they’re considering the same in Massachusetts. Earlier this year I was worried that by doing so I’d be giving them ideas. But by now, they cannot have possibly NOT heard about the action being taken by several other states. I think it’s riskier to remain silent.
I am yet to see any examples of letters sent to state reps in a preemptive manner. So I drafted one up. Please feel free to use this for your own state reps, though I encourage you to customize with your own story.
Subject: Advertising nexus laws and the risk to small business
Dear Senator Eldridge,
I am the co-owner of a small business in your district. My company employs 4 people in the state of Massachusetts. We publish websites that allow people to find, share, and discuss products that are available from e-commerce websites all over the Internet. We earn money through advertising on a performance basis, also known as affiliate marketing. We do not sell products.
There are currently a number of states that are forming and passing legislation that targets this type of advertising in such a way that it establishes nexus requiring out of state merchants to collect sales and use tax from residents of those states. New York was the first and passed a law last year dubbed the “Amazon tax”. There are a number of states in the process of doing the same, including Connecticut, North Carolina, California, Hawaii, and others.
While I understand that states are in financial crisis and wish to require as many merchants to collect sales tax as possible, the basic flaw in this legislation is that the merchants can avoid it by terminating their advertising relationship with all publishers in the given state; they are doing this. The publisher businesses cannot avoid it; they get hurt, taxes don’t get collected.
For example:
- Hundreds of advertisers terminated their relationship with thousands of New York state publishers when the law was passed last year. As a direct result of the terminated relationships, many New York publishers were forced out of business.
- Dozens of merchants recently terminated relationships with Connecticut publishers based merely on the speculation that the legislation would pass there.
- Just last week, Amazon terminated their relationship with all publishers in the state of North Carolina which has added similar legislation to their pending state budget. That letter from Amazon to NC publishers can be seen here:
http://www.marketingpilgrim.com/2009/06/amazon-calls-nc-lawmakers-bluff-cancels-affiliate-program-early.html
- Last week, Amazon followed through with their threat and terminated their relationships with Hawaii advertisers.
The supporters of this legislation are rallying behind the idea creating a level playing field between online and offline merchants. And while “sticking it” to Amazon and other online merchants might seem like a righteous thing, it has been proven that it severely harms thousands of businesses like mine while the big merchants can avoid it.
How can states pass legislation that will put their resident businesses at risk?
Several states have realized that these new advertising nexus laws are not the answer to balancing their budget. States like Minnesota and Maryland, have realized the gains do not outweigh the losses. The income gained from the sales tax does not compensate for the loss of income tax from the small businesses which are forced out of business. Even if these small business owners can stay in business, their income is significantly reduced. Less income not only means less income tax, it means less spending, less investing, less growth. For the small business owner such as me, it could also mean cutting back on benefits and reducing the number of employees. All of this is detrimental to individuals and to our state. Small business owners are a critical part of our economy.
If Massachusetts was to pass similar legislation, any of the dozens of merchants that advertise through us could terminate us based merely on the state that we operate in. Nearly 100% of our revenue comes from out of state merchants. This could put us out of business. There are thousands of individuals and businesses in this state with similar advertising models.
This is a critical issue to my business. As other states have contemplated advertising nexus laws, publishers such as myself, have learned that many legislators did not realize the impact of the proposed legislation, nor did they quite understand our business. We have spoken before legislators of several states in both public sessions and private meetings. We have found it is more efficient to hold these meetings in advance of any proposed legislation. I would like to meet with you to discuss this issue further and will call to schedule a meeting.
In advance of my call, your staff can contact me to schedule a meeting or for more information. I may be reached at 617-xxx-xxxx.
Thank you for your time and I look forward to meeting with you.
Sincerely,
Scott Jangro
President and co-founder
MechMedia, Inc.
Stow, MA
I’ll follow up with my experience as I contact and hopefully meet with my representatives.
