Colorado had a brilliant tax idea and passed a law Colorado Law HB 10-1193 that companies that have affiliate members in Colorado making more that $10k in fees a year have to pay a sales tax on the affiliate fees they pay. Keep in mind this brilliant law is supposed increase tax revenues but has already had a negative effect.
1) Companies will no longer offer affiliate programs. Amazon notified all Colorado affiliates that all Colorado affiliate contracts are herby canceled because of HB 10-193. (See the letter below) This means a loss in revenue for the state to collect from the affiliate company (Amazon and others) as well as corporate taxes from companies and entrepreneurs in Colorado that use affiliate programs as a source of revenue.
2) Companies that generate revenues from affiliate programs will generate less revenues so the government has less to tax as a whole.
3) Small Colorado companies that depend on affiliate revenues for income or worse yet to offset web site expenses are in a tough spot during a tough economy. Affiliate programs are a life blood to many who are launching a product or service and do not have a lot of money to put toward traditional advertising. Now it is even harder to push out a new product or service which will only hurt our economy more.
Unfortunately this law may have copycats; many other states have or are trying to pass similar laws. California, Connecticut, Florida, Hawaii, Idaho, Illinois, Maine, Maryland, Minnesota, Missouri, New Mexico, North Carolina, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, West Virginia, Wisconsin
Here is some more information:
Debra Zimmers Blog explains this issue very well
John Morse, Colorado Senate majority leader
He is pro HB 10-193 – his argument is built on companies that have physical buildings in Colorado not pure internet companies like Amazon or Overstock. It seems he is also personally upset and wants to boycott Amazon for their actions.
Brad Feld – local Colorado entrepreneur and founder of venture capital companies.
Overstock.com is threatening to cancel all affiliates in Colorado
Denver Post, Vincent Carroll
The Write Spot – Joe Rice, State Representative Colorado letter to Denver Post
The Amazon letter:
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.
The Amazon Associates Team