Website publishers in Connecticut and Arkansas will soon be kissing a revenue stream goodbye.
Amazon.com's (Nasdaq: AMZN) popular Associates program -- through which webmasters and publishers can earn as much as 15% in commissions by referring visitors to Amazon's product pages -- is coming to an end in those two states.
It's not that the leading e-tailer has anything against the entrepreneurial residents of Connecticut and Arkansas. As far as I know, CEO Jeff Bezos doesn't have any former flames living in Bristol or Little Rock. Amazon's decision is being fueled by the same state-based legislation that has forced the company to cut ties with affiliate marketers in North Carolina, Rhode Island, and Hawaii.
If state legislators propose e-fairness legislation that forces online retailers with affiliates in that state to begin tacking on and collecting sales tax, Amazon will sooner cut ties with its associates than impose higher prices on everyone in the state.
We're not just talking about Amazon, either. Blue Nile (Nasdaq: NILE) and Overstock.com (Nasdaq: OSTK) have also nixed certain states to maintain their Web-based pricing advantage.
Cash-strapped states have been hoping that taxing online retailers that don't have a physical presence in the state can help fill their emptying coffers. The easiest legal path is to imply that doling out referral commissions to state residents qualifies as having a corporate presence. Unfortunately, the e-tailers have responded by simply taking a step back when it comes to affiliate marketing.
The end result is typically a lose-lose situation. The e-tailer will miss out on incremental sales through the local publishers, and the state not only misses out on its desired tax grab but now also has residents earning less taxable income.
We're at the point where Amazon may no longer need the Associates program, anyway. The success of its Prime loyalty membership plan is already keeping customers close. There can't be too many people out there who haven't heard of Amazon.com, and if a website or blog is generating enough sales volume through referrals to Amazon's product pages, there are alternatives.
Webmasters can turn to Google (Nasdaq: GOOG) AdSense to populate their pages with targeted ads or cherry-pick available affiliate programs through ValueClick's (Nasdaq: VCLK) Commission Junction and other smaller offerings. Earlier this year, Barnes & Noble (NYSE: BKS) began reaching out to affiliates in states Amazon booted, since it already has to tack on state sales tax to its e-commerce orders.
These solutions may not always be as ideal as sifting through Amazon's massive and growing virtual storefront, but it's not the end of the world. It also won't be the end of the world for Amazon, which no longer needs the affiliate-fueled sales the way it did when it launched the program in the 1990s.
Should states be able to force Amazon into collecting state sales taxes? Share your thoughts in the comments box below.
