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Will AdSense be hit with an "Amazon tax"?

Don't be apathetic about this

     
2:47 am on Jun 29, 2009 (gmt 0)

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Stay with me here - this is about AdSense.

I am a resident of North Carolina. This past week, along with all other Amazon Associates in North Carolina, I received an email from Amazon indicating I was terminated immediately.

This was in response to legislation that is expected to be passed in NC any day now that will cause Amazon to have to collect and submit sales tax from all NC customers if Amazon has a presence in NC. The legislation basically states that if an affiliate/associate of the retailer is a citizen of the state, then the retailer has a presence in the state.

North Carolina isn't the first state. In case you aren't aware, similar things have happened or are happening in NY, CA and Hawaii. Your state may be next.

Here's the possible AdSense connection. Advertising services, which is what Google sells on our sites to finance AdSense, are typically not subject to sales tax. But in their never-ending quest for more revenue, some states are considering taxing services.

If a sales tax becomes applicable to advertising services, the same legislation I described above would no doubt subject Google to collect a sales tax on all advertising sold on the sites of webmasters based in the state. Google may decide to do what Amazon is doing and pull out of the state. That means publishers based in the state would get one of those "your account has been terminated" email messages on short notice.

If you're not following what is happening with Amazon and the efforts in various states, I urge you to get up to speed, pay attention and contact your elected state representatives.

FarmBoy

4:04 am on June 29, 2009 (gmt 0)

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Interesting. So what exactly are you advising us to say to our state reps? That hundreds if not thousands of small businesses will be eliminated if this is implemented in our state?
4:07 am on June 29, 2009 (gmt 0)

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As a side thought. My business is incorporated in Delaware. I have a local representation there in the state. If the state where I lived passed something like this, could I not get around it by changing my address in Adsense to my out of state business address? Or even a relative from another state?
6:45 am on June 29, 2009 (gmt 0)

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If you're not following what is happening with Amazon and the efforts in various states

FB,

Here I was thinking that at least here I'm immune from this topic and now you have raised it.

Yes, it is a very serious issue.

Yes if it succeeds in NC and elsewhere then, as night follows day, it will be implemented in other states for no other reason than good political nous says:

"Never stand between a state and a potential bucket of money - you'll get run over every time".

I think Amazon's approach is totally pathetic. The law isn't even enacted and yet they've summarily terminated every NC account and possibly Hawaii as well.

The motivation we understand is to get those Associates to do the complaining for Amazon. How craven?

Amazon maintain that if these laws were enacted then they are unconstitutional. If this is the case, then why doesn't Amazon and any other corporation simlilarly affected, challenging this "unconstitutionality" in the courts?

Using long term loyal Associates as cannon fodder to lobby state representatives under the barrel of a gun is as about as weak as corporations get. Loyal Associates used and abused.

Amazon, yet once again, have made a huge PR blunder. There would not be one informed Associate left who owes Jeff Bozo and his bean counters anything.

Then again, from an organisation which can't run a civilised discussion forum, anything is possible.

[added] How this directly affects AdSense I don't know but if a state can figure a way to tax AdSense incomes they will.

[edited by: IanCP at 6:50 am (utc) on June 29, 2009]

1:04 pm on June 29, 2009 (gmt 0)

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I think Amazon's approach is totally pathetic. The law isn't even enacted and yet they've summarily terminated every NC account and possibly Hawaii as well.

This legislation is part of the state budget that must be voted on and approved before July 1. The way it is written, once enacted, it becomes effective immediately. Polling indicates a majority of the state legislature will approve. The vote can come any day.

Amazon is being prudent. If the vote were held today and approved while Amazon still had active affiliates in the state, the threshold would be crossed and it would be too late. I think Amazon was prudent in terminating the accounts when they did.

The motivation we understand is to get those Associates to do the complaining for Amazon. How craven?

I know the current pop-culture attitude in the U.S. is that business-for-profit is evil, but when government is taking away freedoms, not to mention income, and people still blame business, it's amazing, if not sad.

Amazon maintain that if these laws were enacted then they are unconstitutional. If this is the case, then why doesn't Amazon and any other corporation simlilarly affected, challenging this "unconstitutionality" in the courts?

They might. But that process could take years.

... yet once again, have made a huge PR blunder.

Amazon has a lot more customers in the state than Associates. Amazon could easily just have went along and started charging those customers sales tax. Instead, they have decided to do without the revenue generated by Associates in order to keep costs lower for customers. Sounds like a PR winner.

How this directly affects AdSense I don't know...

See the first post in this thread.

FarmBoy

-------------------------------------

P.S. Hmmm. I wonder if I could be good at this business-is-evil game? Let's see:

[sarcasm]Webmasters are selfish. They let Google put ads on their sites in return for money. But the number of ads is limited. If an advertiser providing a product I want doesn't have the money to bid high, I may never get their ads. Website operators should give away ad space on their sites so more companies can advertise and give consumers the opportunity to shop around more. But no, webmasters who are AdSense publishers are greedy and are more worried about lining their own pockets with money than the needs of the people who visit their site.
[/sarcasm]

1:09 pm on June 29, 2009 (gmt 0)

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As a side thought. My business is incorporated in Delaware. I have a local representation there in the state. If the state where I lived passed something like this, could I not get around it by changing my address in Adsense to my out of state business address? Or even a relative from another state?

I thought the same thing. I was considering opening an office in a neighboring state and letting my sites be based there. However, I read the legislation and the key is not on where the business is based, but on where the Associate is a citizen.

So you would need to move, at least for enough months of the year to establish citizenship in another state.

The legislature probably anticipated people would move their base of operations to another state and inserted language to make that ineffective.

FarmBoy

1:22 pm on June 29, 2009 (gmt 0)

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Interesting. So what exactly are you advising us to say to our state reps?

I'd call the man or woman who represents your district and have a brief discussion. (It's amazing how few people will take the time to do that)

Tell him you have to live within your means and that you expect the state to do the same. Ask him if he is familiar with the NC/Amazon situation and ask if he would support something like that in your state. Let him know you oppose - if you oppose.

Then, pay attention during the next election cycle, especially during the primaries. Support another candidate.

And don't get discouraged if it feels like you're all alone in slaying the dragon. It takes individuals each willing to take a few minutes to be heard and willing to vote on election day.

FarmBoy

1:52 pm on June 29, 2009 (gmt 0)

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There's a lot of money in this, and it wouldn't be too surprising if eventually the states came after more of it.

I don't really see Google pulling out of states as Amazon did; I think it would be more likely they'd bring some considerable political power to bear. At least to begin with. But it could happen.

2:02 pm on June 29, 2009 (gmt 0)

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It is important to note that if we discussing the idea that this could happen with Adsense, if it got that far, it would happen to all forms of online advertising... Meaning that every ad network would be in the same boat... and all publishers (not just Adsense).

If it got that far, it would go way beyond Google...

2:08 pm on June 29, 2009 (gmt 0)

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I imagine there was a lot of swooning and teeth-gnashing when retail sales taxes were introduced in the U.S., and when VAT was introduced in Europe. Today, such taxes are taken for granted. If and when taxes on advertising are introduced, we'll witness a similar phenomenon: fainting spells, followed by angry rhetoric, followed by adjustments to the new reality.

Don't forget, too, that AdSense is a small piece of a far bigger advertising picture. If North Carolina or East Elbonia introduces a tax on advertising services, it's unlikely to be limited to AdSense. It will affect TV stations, radio stations, newspapers, magazines, direct mailers, Internet display-ad vendors, direct mail, and other media--just just mom-and-pop publishers who run AdSense ads. Will the entire advertising industry die overnight if taxes are imposed in North Carolina, East Elbonia, or the world at large? That seems unlikely. There may be political and legal battles aplenty, but in the end, life--and business--will go on.

2:25 pm on June 29, 2009 (gmt 0)

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I live in a state where Amazon has a physical presence, about 50 miles from my home. Would Amazon eventually limit their affiliates to those who live in such locations? I don't think so.
3:57 pm on June 29, 2009 (gmt 0)

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According to the Sales and Use Tax Regulation of California [boe.ca.gov], it doesn't look like AdSense would be taxable at this point. See (b) (1) (F), parts 1 & 2.

However, politicians are, of course, never above introducing new tax legislation. But this would clearly be a new type of tax, and the state Republicans have already said they will vote against any new taxes, and the Govenator has said he will veto anything containing new taxes. And unless any proposed legislation specifically targeting online advertising only, it would include advertising in all other media, which would unite the newspapers, magazines, radio, and TV stations together for some serious clout. Even if it only included online advertising, most of the other media channels mentioned have websites (many/most with ads on them), so they would probably still weigh in. Especially if they saw taxing online advertising as a foothold to tax advertising in other media.

[edited by: LifeinAsia at 4:05 pm (utc) on June 29, 2009]

5:20 pm on June 29, 2009 (gmt 0)

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The issue is made much more serious by the great number of states that are having serious budget problems. Not just the normal scramble to make a budget, but heavy emergency-level problems. Illinois (writing IOU's to pay employees) Cal (bankruptcy possibilities) Indiana (shutting down public services) etc, etc.

When politicos panic, that tiny, miniscule shred of common sense they had evaporates.

The worst news in my opinion, is that like the Amazon affiliates, we are a silent , un-organized subset of voters. In other words, easy targets.

7:07 pm on June 29, 2009 (gmt 0)

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The solution will be a national internet sales tax that the feds will forward to states. Well they'll take their chunk first, then they'll decide who gets what is left based on anything else other than where the sale was made. ;)
9:24 pm on June 29, 2009 (gmt 0)

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The solution will be a national internet sales tax that the feds will forward to states

The solution which already exists in Australia. If I sell blue widgets online and I sell to an Australian resident then I must levy 10% GST [Goods and Services Tax]. If sold outside Australia no tax is applicable.

Now for the oddities, certain products such as fresh [unprocessed] food are exempt from GST. A few months back I was looking at a gardening site for seed garlic which was quite expensive @ $43/Kg.

On the order form they had a flashing radio button which said "Are you are purchasing this product for cooking? Otherwise include +10% GST"

6:06 am on June 30, 2009 (gmt 0)

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Wow how do you measure the multiplying effect of sales, ie the stock market mentality of the internet stocks , living lives in multiples ie. 1 sale = 100 type stuff.

I guess the reality of it is they would have to talk to a team of lawyers to " Decide " on what to show as earnings. All of which would be created of course.

BTW I was banned but a long time ago regardless it was only due to too many clicks and their automated reward feature.

1:58 pm on June 30, 2009 (gmt 0)

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Amazon has done the same in RI for same reasons. In RI the lawmakers have written the law to categorize affiliate publishers as sales agents (people who actually sell stuff for a company) rather than publishers who simply carry ads. It seems to me that putting AdSense publishers will make almost all publishers as sales agents and that may not happen.
2:05 pm on June 30, 2009 (gmt 0)

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It seems to me that putting AdSense publishers will make almost all publishers as sales agents

Unlikely, because you aren't the party selling the advertising--Google is. (In the case of an affiliate program, you're representing the merchant directly, unless you're going through an affiliate aggregator like Commission Junction.)

That doesn't mean advertising couldn't be taxed on your site if the law were written in such a way to permit it. But it would likely be a tax on your advertising revenue, not a tax because you're a "sales agent."

3:33 pm on June 30, 2009 (gmt 0)

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The issue has (sort of) made the mainstream. The L.A. Times had a story on page 4 of the Business section (online version [latimes.com]).

Amazon even sent a letter to the Govenator threatening to terminate all California-based affiliates. The Gov's spokesperson's statement ("The governor has been clear that he is not supportive of new tax increases to solving the budget problem.") skirts the issue (in typical political fashion) as it's not technically a new tax, but just a new way of collecting an existing tax.

It's beginning to look more likely that it's going to pass at some point (maybe/hopefully not for a few months). I see the fight going all the way to the national level, creating a lot of wasted time, energy, and money for all parties.

For us, revenue from affiliate programs is not our major revenue stream. But we've invested a lot of time and energy to setup the internal systems, especially for Amazon.

8:31 pm on June 30, 2009 (gmt 0)

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I'm in the UK and I haven't heard anything about this here. But can I ask all of you not to tell Gordon Brown (UK PM), and probably the real PM, Mandleson, about this. If he hears about it, the US will be put to shame. A new countrywide tax law will be implemented within a week, probably post dated for five years.

Is "Murphy's Law" or similar, alive and well in the US?

9:23 pm on July 2, 2009 (gmt 0)

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Maybe I'm missing something, but I fail to see how this would affect Google. I already pay income taxes on my google adsense income, so the state is not missing out on anything. It's not as if Google ships (or sells) a physical product, so I fail to see how NC (or any other state) could justify a sales tax on an intangible service.
9:51 pm on July 2, 2009 (gmt 0)

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It's not as if Google ships (or sells) a physical product, so I fail to see how NC (or any other state) could justify a sales tax on an intangible service.

There's nothing revolutionary about sales or VAT taxes on services. Such taxes exist today in many places.

If a tax were levied on AdSense advertising, it most likely would be levied at the time an ad was bought from Google. In other words, if an advertiser paid Google $500 and the tax were 5 percent, the advertiser would billed $525, and Google would pass $25 on to the taxing authority. The publisher wouldn't be involved in the tax collection, but the publisher might be affected by the tax, because some of the advertiser's budget dollars would be paid to the government, not to Google and the publisher.

10:05 pm on July 2, 2009 (gmt 0)

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There's nothing revolutionary about sales or VAT taxes on services. Such taxes exist today in many places.

If a tax were levied on AdSense advertising, it most likely would be levied at the time an ad was bought from Google. In other words, if an advertiser paid Google $500 and the tax were 5 percent, the advertiser would billed $525, and Google would pass $25 on to the taxing authority. The publisher wouldn't be involved in the tax collection, but the publisher might be affected by the tax, because some of the advertiser's budget dollars would be paid to the government, not to Google and the publisher.

True...but while I understand that would hurt overall adwords revenue, which in turn would hurt revenue that could be passed on to adsense publishers, I don't see how it would even remotely prompt Google to give publishers the heave-ho from a states that pass such a tax.

12:13 am on July 3, 2009 (gmt 0)

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I don't see how it would even remotely prompt Google to give publishers the heave-ho from a states that pass such a tax.

Nor do I. On the other hand, Google could give the heave-to to advertisers in those states, but that doesn't seem too likely, either. :-)

8:15 pm on July 7, 2009 (gmt 0)

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time for tea parties....

I am incorporated and live in pennsylvania. I have not heard of it hear but if fast eddie rendell and our kleptocracy smell money, it is just a matter of time...

8:16 pm on July 7, 2009 (gmt 0)

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oops can't edit from my phone .. here not hear..