How California's New Online Sales Tax Law Will Hurt My Business

Today, June 30, was not a good day to be an online retailer or have anything to do with e-commerce as a California business. We have several travel websites and today, Amazon.com, along with several other major brands with which we have online affiliate relationships, emailed us notices terminating our affiliate agreements with them.

They took this action after the State of California enacted a law requiring Internet retailers to charge and collect sales tax, like brick and mortar stores do. Several major Internet retailers, including Amazon, refuse to comply, claiming it's unconstitutional and taking legal action accordingly. By severing their relationships with over 10,000 of these mostly small online businesses, Amazon is hope to gain legal standing by then claiming they have no physical presence in the state and are not subject to it's laws.

Blogs and websites like ours (travel4seniors.com), as well as big sites like cnn.com, make money from advertising. Some advertisers pay us for views, how many people see their ads on our website, and some pay us a percentage of things people buy from our site.

We have a travel site, so we have banner ads from major travel providers like orbitz.com as well as retailers like Amazon and iTunes.com. If someone visits our site, then clicks the orbitz link, then buys a cruise, we get a small commission, usually about 3%. If they click on the amazon banner and buy a travel book or DVD, we get a percentage of that purchase, usually about 3%, as an affiliate. The more visitors our site gets, the more business they do with our advertisers, and the more revenue we generate.

Now with this new California law, many out-of-state online retailers, like Amazon, would rather end their affiliate relationships with California-based affiliates, to be able to continue selling online in California without charging sales tax. It's a business decision, but it hurts small businesses like ours, and is killing others who rely even more heavily on the income than we do.

As the owner of a website, part of our revenue comes from those affiliate sales to Amazon and other major retailers. Immediately after California Governor Jerry Brown signed the bill into law today, I received an email from Amazon.com terminating my contract with them as an affiliate and notifying me that as of today, I would no longer be compensated for sales referred from our website. The email from Amazon.com was detailed and apologetic, pointing the blame squarely at the new law. This is also a cruel technique to force the State to back down, hoping they don't want their citizens and businesses to suffer.

Amazon and other online retailers have been fighting the law for years. In a way, I do see the unfairness of it, yet I have taken advantage of it in the past as a consumer. Here in California the sales tax is 10%. If I go to Best Buy to buy a new computer, I have to pay 10% sales tax. Before June 30, I could go to Amazon.com and buy the same item, without having to pay the 10% sales tax. Since Amazon would also offer free shipping, I made many electronics, clothes and other purchases there, to save money.The law put physical brick and mortar retailers like Best Buy at a disadvantage to online retailers who could, in effect, always offer a 10% lower price that physical stores.

Although our business will take a hit, about $500 a month loss without the Amazon business, we can get by. There are other businesses who rely solely on their Amazon affiliate income and must now move or close. We do business with some other online retailers and will concentrate on them. It's a fight between big online companies like Amazon and big, big box physical stores like Best Buy and Walmart, and it's the little guy like me that gets caught in the middle.

Some online retailers are taking advantage of the law, I received an email from buy.com, another online shopping site, advising me as a potential affiliate that they were located in California, already paying sales tax, and had no plans to drop California-based affiliates.

More from this contributor:

How I got the IRS to remove fines and penalties

Using online video for your small business

E-commerce basics for small business

Sources:
Affiliate termination email from amazon.com

Marc Lifsher "Amazon.com won't collect sales tax; cuts off California affiliates" Los Angeles Times via latimesblogs.latimes.com