February 8, 2013

All your book reviews are just advertisements for Amazon, says Amazon


Amazon was back in court this week, trying again to avoid paying state taxes. The crux of their argument: affiliate program members are advertisers for the company.

It can be wearying keeping Amazon’s various legal battles straight. Amazon, like a ravenous Lovecraftian behemoth, an evil too weighty to be held by mere gravity, exists between planes of existence: half in our corporeal realm, slumbering foully, and half in a warped legal dimension of its own creation. Amazon is always in court, is my point.

In this particular instance, Amazon is back before the New York State Court of Appeals alongside co-defendant Overstock.com. At issue is a 2008 ruling by that court upholding a New York law that websites with an “affiliate” program member in the state, like Amazon (or Powell’s, for that matter), can be assumed to have a “nexus” in New York and are thus liable for sales tax in the state.

The language involved stems from a 1988 supreme court case, Quill Corp v. North Dakota, which rules that retailers lacking a “nexus” of operation in a state can forego collecting sales tax. As Nanette Byrnes of Reuters reports,

Between the law’s passage in 2008 and February 2012, online-only retailers collected and remitted to New York $360 million in sales tax on more than $4 billion in transactions, according to the state’s Department of Taxation.

We’ve covered Amazon’s efforts to shirk sales tax in various states extensively here, including their absurd ruses to disguise their physical presence in so-called “bad states”, their threats to suspend affiliate programs, and in general their willingness to try any and everything to avoid the fees, an issue which, as the Wall Street Journal has reported, the company considers “critical to its performance.”

This week’s court battle over the role of affiliates turned on the distinction between solicitation versus advertisement. Dave Grogan of the ABA writes,

While Amazon and Overstock contended that online affiliates were mere advertisers, similar to an advertisement in the New York Times, Steven Wu, special counsel to the Solicitor General for New York, disagreed. He countered that the commission-model, by its very nature, offers incentives for affiliates to solicit business, thereby rendering them sales agent of the remote retailer. “This is not about advertising,” Wu said. “It’s about solicitation.” He argued that the affiliate model is contract-based so it is “reasonable to assume” that affiliates solicit business, and not merely through banner links on websites, but via e-mail solicitations, as well.

To be clear: the argument here is whether, when you link to Amazon from your review of a book (or a household appliance, or a type of sheetrock, etc.) you are soliciting for them or advertising for them. Amazon is insisting the latter, that every book review, every blog that mentions them, from the humblest to the most reputable, if they are part of the affiliate program, are actually being paid for that coverage and are advertising for the site and their products. What’s more, they only took this hugely disturbing stance because that would enable them, as New York State laws stand now, to duck paying sales tax in a state where they undeniably conduct very many sales.

A ruling is expected in June, though, as Byrnes writes,

Legislation that could resolve these issues has been introduced in the U.S. Congress, but has not come to a vote. The issue may end up before the U.S. Supreme Court. Mastro said the case will be appealed no matter the result.



Dustin Kurtz is former marketing manager of Melville House.