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More Stupid Taxes

December 28, 2012

While investigating the Amazon Affiliate Marketing program for another site, I discovered that residents of North Carolina, among other states, can’t participate in the program. This came after my frustration in not being able to find North Carolina in the drop down list of states (I thought I was just an idiot and not seeing it). The issue, at least in North Carolina, appears to be a requirement by the state that online retailers register a quasi-nexus in the state, which would subject them to North Carolina sales tax. Rather than doing this, certain sites, like Amazon.com and Overstock.com, have decided to simply suspend their affiliate marketing programs for residents of those states, rather than subject themselves or their affiliates to the taxes.

The rationale for instating these taxes is to level the playing field between brick-and-mortar and online retailers. The problem with this reasoning is that there are other factors that already level this playing field. The biggest of these is the fact that the consumer must pay for shipping. Even if the site offers ‘free shipping,’ the cost of that shipping is already baked into the prices of the products offered by the site. In addition, it takes some amount of time, from overnight to a couple of weeks, to receive products ordered online, so there is no lure of instant gratification. Finally, many items, such as clothing, shoes, etc., simply do not lend themselves well to online shopping, as people can’t try these items on, feel them, or actually see them prior to purchase.

Indeed, the reasons above have limited online sales to a tiny fraction of the overall retail marketplace. For all the talk about ‘Cyber Monday’ and the growth of online sales, they still account for only 7% of all retail sales. To put this in perspective, total online retail sales are projected to reach $226 billion by YE 2012. Walmart’s retail sales, on the other hand, were $443.9 billion. That’s right, the entire online marketplace is half that of just Walmart’s.

US Retail Sales 1992–2010

US Retail Sales 1992–2010 (Photo credit: Wikipedia)

So why all the fuss? Because the big box stores, like Walmart, don’t like competition. And they have pressured legislators in various states to pass laws to ‘level the playing field’ by charging sales tax to online retailers. In other words, they want to tilt the playing field more in their favor. Ultimately, the losers here are small businesses and entrepreneurs who are trying to take advantage of the opportunities offered by the online marketplace.

So what’s a person looking to participate in affiliate marketing to do? Well, first, let me emphasize that I am not a lawyer or accountant, and have no ability to dispense legal advice. However, there are other sties, such as Google, that do still offer affiliate marketing services to people in North Carolina. The aforementioned big box stores, already having a physical presence in the state, do as well. You would still be well advised to check with your accountant on how to handle any income derived from affiliate marketing services.

In the meantime, I will be writing my legislators to try to convince them of the error of their ways. Wish me luck.


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From → Opinion

2 Comments
  1. Brian cremeansb permalink

    I am writing from my phone, but I could not agree more with the title and contents of your article. In political decisions, following the money usually leads to the logical conclusion. In this case, it lead to the conclusion large box retailers were using a tax increase to “level the playing field,” in reality, to stifle competition. Well written posting.

  2. i have heard this before but can’t recall where i did, still interesting though,

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