What to Call It? “Amazon Tax” or “Advertising-Nexus Tax Law”

By , January 7, 2009

What should we (web publishers, merchants, and others in the affiliate-marketing industry) call the unconstitutional law which NY enacted (and which RI, NC, HI, CA, TN, CT, and MN are considering)?

On July 1, I originally wrote:

I’ve stuck with the term “Amazon Tax” because:

  • Amazon was the the booksellers’ primary target in writing this bill, and they continue to refer to opponents as “Amazon apologists”;
  • Amazon probably collects more sales tax for New York than the total collected by all other merchants (combined) who were “captured” by the law last year;
  • Legislators are viewing this as primarily a tax on Amazon, and don’t care about other out-of-state merchant any more than they do about Amazon;

I agree that it’s troublesome that this term “shifts the focus” away from the in-state web publishers (small business owners) who will suffer most, as well as excluding many smaller out-of-state merchants.  By calling this the “Amazon Tax,” the focus is instead on the practices of a huge out-of-state corporation.

The term also implies that if passed, the law will actually cause Amazon to collect the sales tax — which simply isn’t true.

Unfortunately, all the “alternate” terms used to identify the law have their own problems. I’ve discussed this before, too:

  • For legislators and voters, the term “affiliate” is likely to bring to mind the intensely close relationship between a national TV network and its local affiliate station;
  • The term “associate” evokes the idea of a Best Buy or Wal-Mart sales representative;
  • The term “partner” is a deal-killer, because it assumes a complete integration of the parties;
  • The words “referral” or “commission” are associated with the idea of in-person sales representatives.
  • The term “click-through advertiser” or “click-through agreement,” used by some legislators, seems to actually broaden the scope of the law, which is worded very broadly but has been very narrowly interpreted in New York;
  • The word “nexus” might be the best alternative, but isn’t quite accurate (because the law doesn’t seek to re-define the word nexus, but instead to pretend that an advertising contract creates a “physical presence,” which is the threshhold required by the U.S. Supreme Court to establish nexus). Of course, neither legislators nor voters have any idea what “nexus” is, so the word could be a confusing distraction. (On the other hand, it emphasizes the obscurity of the “trick” which legislators are trying to use.)
  • The law uses “advertising” with “local web publishers” as the “hook” (and the law is broadly worded so it really includes all in-state publishers and broadcasters, although New York has interpreted in more narrowly, and it’s unlikely that states will seek to apply it to “offline” advertising). The real emphasis belongs there: this is really an “advertising” law, providing that merchants who pay any in-state media outlet for advertising in a state must collect sales tax there.  In effect, it’s an “anti-local advertising” law, imposing a “penalty for advertising in this state” — as well as a penalty for paying in-state businesses for advertising anywhere else.

But then I changed my mind, later that same day:

Okay, I’m convinced that “Amazon Tax” is not the right name to use when referring to this language. Governor Schwarzenegger certainly helped me reach that conclusion, when he specifically referred to Overstock.com when explaining why he vetoed the budget bill.

I’m now planning to use the term “Advertising-Nexus Tax” to refer to this issue. I agree that it’s important to clarify that what’s being targeted is advertising (not “sales agents”), and the word “nexus” helps people see that this is an obscure “trick” and not a legitimate policy.

It’s also important to recognize that the plain language of the bills (the language written by the booksellers’ lobbyists) isn’t limited to commission-based or performance-based advertising, nor to online or internet advertising. As written, the law provides that any in-state advertising could trigger the sales-tax collection duty. Thus, terms like “affiliate tax” or “internet tax” are unfairly limiting.

In general, I probably won’t refer to “the Advertising-Nexus Tax,” but instead to “Advertising-Nexus Tax Law” or “Advertising-Nexus Tax language.” (These bills don’t seek to “tax advertising.” Instead, they would create tax laws which are triggered by an advertising-nexus. Likewise, they aren’t “affiliate taxes” since they don’t seek to “tax affiliates,” and the term “Amazon Tax” is somewhat unfair because states aren’t asking Amazon and other merchants to pay a tax, but instead to serve as forced tax-collection agents for the state).

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