Sacramento, CA. Wal-Mart's Battle With Amazon Over Affiliate Marketers
Wal-Mart is busy working both sides of the street on an internet sales tax campaign. But it turns out that imposing a sales tax on internet sales is not the real goal at all.
On the one hand, the giant retailer is bankrolling the front group Alliance For Main Street Fairness, which is pushing for a mandatory internet sales tax. On the other hand, Wal-Mart runs a "Marketplace" on the internet where its retail partners boast that shoppers don't have to pay sales tax.
The Wal-Mart sales tax campaign is designed to steal market share from Amazon.com, which has amassed an empire of 'affiliate' websites which get paid for directing sales towards Amazon. The endgame in this debate is not about taxes -- but about who will control the "affiliate marketing" empire, a vast spider's web of connections that drive sales to the corporate webcenter.
Under federal law, states cannot force retailers to collect sales tax unless they have a physical presence in the state. Internet shoppers are supposed to pay their own "use" tax to their state, but most shoppers don't even know this requirement exists. Wal-Mart's campaign is targeted towards Amazon.com -- so much so that the internet sales tax is often referred to as the "Amazon Tax."
Wal-Mart and other national chains have been underwriting an expensive state-by-state lobbying campaign, invoking the interests of Main Street businesses. But small businesses are split for and against this internet tax. Small retailers who survive on bricks and mortar stores support the tax, while online small retailers say collecting the tax across many political jurisdictions will kill them.
While Wal-Mart is promoting an internet sales tax, some of its own affiliate marketers are using their tax-free status to promote online sales.
In late August of 2009, Walmart.com issued a press release heralding the launch of the "Walmart Marketplace" which was described as "a new program that gives customers more choices" enabling "a select group of retailers to offer additional products" on Wal-Mart's website. The "Marketplace" service allows consumers "the added convenience of purchasing from select retailers known for their customer service and large selection." All purchases made on the "Marketplace" are managed through Wal-Mart's online checkout process, while the shipping and handling of the order is done through the affiliated partner.
One of the companies selected by Wal-Mart Marketplace was CSN Stores, a private company selling home, baby, toys, sporting goods and shoes. Founded only a decade ago in Boston, CSN Stores now has $380 million in sales, and oversees more than 200 online "niche shops" selling everything from bedroom sets to barstools. On its website, CSN promotes its tax-free status with this disclaimer: "One of the best things about buying through CSN Stores is that we do not have to charge sales tax... CSN Stores is not responsible for individual states' sales tax reporting laws pertaining to online purchases, so we encourage you to check your state's regulations before you shop."
Despite Wal-Mart's aggressive campaign to impose an internet sales tax, its Marketplace partners are not charging sales tax. Yet spokesmen for the Alliance for Main Street Fairness, Wal-Mart's front group, say that "a sale is a sale is a sale. Whether it takes place online, or at a local business. The same rules should apply online that apply on Main Street." But Wal-Mart apparently has not told its Marketplace partners, like CSN Stores, the rule that a sale is a sale. When it comes to collecting this tax, Wal-Mart is not walking the walk.
The latest flashpoint in the internet tax wars is in California, where several bills dealing with the subject have been sent to Governor Jerry Brown's desk. The legislation as passed forces online retailers to collect sales tax if they have customers from in-state affiliate web sites, and requires online retailers who operate distribution centers or have production facilities to collect online sales tax. When asked at a June 16th press conference if he planned to sign the bill into law, Brown said, "I do think that making people who are similarly situated pay their state sales taxes is kind of a common sense idea."
But some lawmakers in California have warned the Governor that if he signs the internet sales tax bill it will cause Amazon.com to dump as many as 10,000 "affiliates," because under the California legislation, website affiliates are consider to be a physical presence in a state, triggering a sales tax. If Amazon ends all its affiliate contracts, state tax revenue expected from the legislation could drop by as much as 50%. It is also what Wal-Mart wants Amazon to do.
Last March, Amazon.com officials told state lawmakers that the proposed bills would yield no new tax revenues collected by the online retailer. "California consumers would still be able to purchase online at www.amazon.com from Amazon's retail business," the company said, "so these bills would only deny California-based organizations and individuals the advertising fees they currently receive from out-of-state retailers and, ironically, California's general fund could suffer a net loss in revenue as affiliates pay less income tax or move out of the state."
This is no idle threat. Amazon has already dropped its in-state affiliates in states like North Carolina, Rhode Island and Colorado, where the internet sales tax has become law. Amazon now collects no sales tax for any of these states, and pays no referral fees to affiliates.
A group called the Coalition To Protect Small Business Jobs has been lobbying against Wal-Mart, urging Governor Brown to veto the internet sales tax bill. The Coalition says that 17,000 small businesses in California have written to Governor Brown against the sales tax bill. "Without adequate protections for small businesses," said a spokesperson for the group, "this bill and bills like it across the country would make it even harder for us to compete with big retailers on the web, our last frontier for a more level playing field." California-based online giant Ebay has suggested a compromise: a threshold that defines a small business, so that sellers who are getting started aren't subject to the sales tax. But the big box retailers see no need to compromise, since their bill is now on the Governor's desk.
Some affiliate marketers claim that Wal-Mart's goal is simple: wipe out the Amazon affiliate marketing program. According to the website theHoundDawg, Wal-Mart is looking to capture all the affiliate marketers that Amazon drops: "They [Wal-Mart] operate their own massive affiliate program - one that is very affiliate un-friendly, with harsh terms of service and extremely low commission rates. Their position is that if other, better, affiliate programs terminate their affiliates, those affiliates will come running to the Wal-Mart affiliate program, in an effort to retain a portion of their business."
What you can do: According to Wal-Mart's website, an affiliate can "earn money every time a visitor follows a Walmart.com link on your Web site and then completes a qualifying purchase at Walmart.com." The retailer provides its affiliates with a weekly newsletter with banners, links and product information. The program "helps turn visits to your site into revenue for you."
The commission structure at Wal-Mart is 4% on products like toys, home, garden, baby sports, jewelry, etc, and 1% on electronics, video games, movies, music, and other products. By controlling this affiliate empire, Wal-Mart hopes to gain internet share from companies like Amazon. The internet sales tax is the vehicle to drive Amazon out of the affiliate empire.
Wal-Mart, which has been criticized for seeking development tax subsidies and hiring tax credits, trying to lower its property tax assessments, using real estate trusts to dodge state income taxes -- is now promoting an internet tax that its own online partners are not paying. If there were a tax on hypocrisy, Wal-Mart would have a major bill to pay.
To oppose the California sales tax on internet transactions, call Governor Jerry Brown at (916) 445-2841, or go to his email page at: http://gov.ca.gov/m_contact.php