Tech Companies Whine About State Mandates

There’s been talk for years of state governments pushing for taxes on Internet product sales by out-of-state companies. And now you can add pressure for electronics companies to pay for recycling when their products reach end-of-life. But what the industry is about to learn is that it’s actually been largely charmed when it came to government regulation. Now it may be time to recognize what many other types of businesses have: you can grimace and you can fight, but sometimes all you can do is find ways to deal with official requirements as smoothly as possible. Whining — we’ve been hearing a lot of it — only serves to tick off people and put companies squarely in the sites of government.

In the past week we’ve been hearing about e-tailers cutting loose affiliates who happen to be in states that have decided to start taxing the companies. Amazon dropped all its affiliates in North Carolina over a proposed sales tax on sales through affiliates. And then the company cut off affiliates in Hawaii and Rhode Island. Here’s the letter Amazon sent to the affiliates in North Carolina:

We are writing from the Amazon Associates Program to notify you that your Associates account has been closed as of June 26, 2009. This is a direct result of the unconstitutional tax collection scheme expected to be passed any day now by the North Carolina state legislature (the General Assembly) and signed by the governor. As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 26. We were forced to take this unfortunate action in anticipation of actual enactment because of uncertainties surrounding the legislation’s effective date.

Please be assured that all qualifying referral fees earned prior to June 26, 2009 will be processed and paid in full in accordance with our regular referral fee schedule. Based on your account closure date of June 26, 2009, any final payments will be paid by September 1, 2009.

In the event that North Carolina repeals this tax collection scheme, we would certainly be happy to re-open our Associates program to North Carolina residents.

The North Carolina General Assembly’s website is http://www.ncleg.net/, and additional information may be obtained from the Performance Marketing Alliance at http://www.performancemarketingalliance.com/.

We have enjoyed working with you and other North Carolina-based participants in the Amazon Associates Program, and wish you all the best in your future.

Unconstitutional? Oh, please — affiliates in the state crtainly have a physical point of presence, and it’s well established that states can tax sales for business transactions taking place within the state. Talk to any retailer that happens to do business both on the web and in physical locations. If an Internet customer is in a state where the company has an actual presence, then the company collects tax. If a company like Amazon is going to deal with people who are essentially sales agents living and working in the state, what does it think is going to happen?

Now Overstock is doing the same thing in the same four states. But I suspect that the states aren’t going to back down. From their point of view, to continue to make exceptions for Amazon and Overstock affiliates would be unfair to all the small businesses in the state that do have to collect sales tax. Sure, maybe the two companies will rile up their affiliates enough to complain to state governments, but don’t you think they’re going to be heavily outweighed by the normal small retailers that feel like the affiliates are getting a free ride?

Big tech companies keep thinking that they should be exempt from regulation, and I can sympathize with the wish, but it’s flying in the face of reality. As I’ve mentioned before here, there’s a big upsurge in government taking a particular interest in the industry. Antitrust activity is on the rise and there are now multiple federal agencies looking at tech companies seriously. Think that state governments are toothless? Go talk to the tobacco industry.

Things are only going to get worse. Now there are state laws mandating electronics recycling, and they want money from vendors to do the work:

Five companies, including ViewSonic Corp., CTX Technology Inc. and ToteVision Inc., are threatening litigation against Washington state’s new electronic waste law, which requires manufacturers to fund recycling and collection services for old TVs, personal computers and monitors.

 Guess what? The beverage bottling industry has been dealing with this for decades. Given consumer and tax payer reaction to massive corporate frauds, a serious financial meltdown, high unemployment, and decimated savings, you’d think that now would be the wrong time for corporations of any type to complain about the burdens they bear, when, by being “good citizens,” they might actually gain market share and loyalty? But that would require a real long-term consideration for a business, and decision making informed by historic perspective.

Image from “Squibs of California, or, Every-day Life Illustrated,” published 1874, via Google Books, public domain.