The Amazon is not only the world’s largest river, it’s also the world’s largest online retailer and it’s busy making some surprising changes. Upon the passage of new laws in Rhode Island and North Carolina, Amazon.com made the swift decision to cut ties with all affiliates in those regions. The new legislation states that any company that has affiliates based in the prospective states must charge sales tax on items sold to residents in that state. This essentially equates amazon.com affiliates to amazon.com stores located in that state (of which there are none), something that Amazon, as well as other Internet Retailer 500 companies, like Brickhouse Security, view as corrupt and are acting accordingly. Labeling affiliate marketers as sales agents rather than advertising channels is inaccurate, said Rebecca Madigan, founder of the affiliate trade group Performance Marketing Alliance.
In an article in the Wall Street Journal, Amazon.com was quoted sending an e-mail to its Rhode Island affiliates on Monday saying that it was closing their accounts immediately. “This is a direct result of the unconstitutional tax collection scheme passed by the Rhode Island General Assembly with a veto-proof majority,” said the message.
Affiliate marketing is an online marketing system that stems from revenue sharing. The basic principle behind it is that a customer will shop at an affiliate’s website. On their website will be something (an ad or a link) that directs them to the seller (in the case Amazon.com) and in turn the seller (Amazon.com) will compensate the affiliate company. In other words, there are a bunch of companies in Rhode Island and North Caroline that were telling their customers to go to Amazon.com. If the customer goes to Amazon.com and makes a purchase the affiliate company is compensated. Because Rhode Island and North Carolina want to benefit from these connections the ties between them are being broken.
Amazon.com is not the only company breaking ties. Brickhouse Security is also shutting down approximately 200 affiliate companies because it does not want to collect sales tax, and many other online companies are following the lead.
The ramifications of affiliate companies losing ties with big online corporations are dire. Amazon had over 2000 affiliates in Rhode Island alone and all are being hit poorly by this new turn of events. If the governments of these two states were looking to make more money, their plan definitely backfired and are now looking at a $590 million deficit this July.