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March 16, 2010 09:24 PM UTC

Amazon "Job Loss" Fiction Continues

  • 18 Comments
  • by: Colorado Pols

Over the weekend, we were obliged to correct some rather egregious misrepresentations in a Denver Post column on the economic impact of online retailing giant Amazon.com’s decision to end its affiliate relationships with Colorado residents. Post columnist David Harsanyi, among several other profoundly dumb assertions, claimed that Amazon’s “closure” of its Colorado affiliates “involved 5,000 jobs.” Which, as we’ve explained before and will again in a moment, is a wild and baseless exaggeration of reality.

But first, a word from the Colorado Senate Minority Leader Josh Penry’s press office!

“Accusing the business community of ‘crying wolf’ over job losses is a huge insult to the hundreds of Amazon affiliates laid off because of the new Internet tax [Pols emphasis] or the thousands of steel workers whose jobs have been put in jeopardy because of the new energy tax,” said Sen. Ken Kester, R-Las Animas.

Business owners repeatedly testified before members of the legislature saying that a series of Democrat proposed tax increases would kill jobs. Pepsi officials, for example, told lawmakers a new soda tax will put at risk as many as 800 jobs. A new tax hike on candy will target 150 workers at Grand Junction confectioner Enstrom’s, and the more than $3.3 million the company spends each year with more than 300 Colorado vendors…

On the “Amazon tax,” what we’re talking about are essentially online advertising agreements with owners of small websites, both commercial and personal. Let’s put this in perspective: say you’ve got a website. If that website gets 2,500 unique visitors in a month, which is not too shabby for a lot of websites, and assuming a click-through rate of 0.5%, higher than many studies have shown typical–that’s 13 people, rounded up, who would click through to an Amazon “buy something” page. Let’s generously say that half of those actually buy the product, for simplicity’s sake a $25 book. Amazon’s “Classic” compensation program pays a 4% commission on these sales.

7 sales x $25 = $175 in sales, 4% of which is…$7.

Seven dollars a month, folks, and that’s under a fairly generous set of hypothetical circumstances. We’re not unsympathetic to any loss of income in these tough economic times, to be sure, but we don’t know anybody who would consider the loss of seven dollars a month to be a “lost job” in any realistic sense of the term. We wouldn’t call that a lost job at many multiples of that figure, and we have yet to see a Colorado-based website that has actually produced anything remotely close to full-time employment income through this program–period. Take issue with the policy all you want, but please don’t refer to these referral programs as “lost jobs” or “layoffs” ever again. It’s just silly.

As soon as you understand the extent to which Amazon’s arbitrary response to this law, more to the point the economic effect of that response, is being blown out of all earthly proportion by opportunistic politicians, the idea that a 2.9% tax won’t really put 800 Pepsi employees out of work (please, folks)–or Enstrom or Rocky Mountain Steel either–makes a lot more sense.

Comments

18 thoughts on “Amazon “Job Loss” Fiction Continues

  1. after all, why on earth would you actually want to deal with the facts?

    God, guns, gays, and now massive Amazon “job layoffs”. Fact is, God, guns, and gays hasn’t been working too well lately, so gotta come up with something new and exciting.  

  2. A tech company I started in 2007 has been an Amazon affiliate for more than a year, now.  And despite doing more between 250,000 and 700,000 pageview per month since March of last year, we were seeing click-thru rates of maybe 1 in 50,000 PV, and for fairly targeted ads.  We’ve never made any money, and I’m not sure there’s an upside to the Amazon Affiliate game.

    Maybe I never put the proper work into getting views, or maybe I didn’t understand the tricks.  But, the bottom line is that I don’t believe that anyone in Colorado lost their job because of this law.  I suspect a few people lost beer money, but that’s it.

  3. First off, in a perfect world Amazon and all other online companies (like mine) would pay their fair share. The real problem with the Amazon law as detailed here is that it forces small companies to have to file with something like 500 taxing jurisdictions across the country – each with their own interpretation of what is taxable.

    So yes this law could lead to significant job loss. But the job loss will be due to every company that sells online having to put significant effort into figuring what to report when to who – rather than putting that time & money into making and selling more product.

    1. You complain about having to file with so many jurisdictions, but I don’t hear any solution from you. Would you support a national sales tax on online purchases? The Amazon bill mentions that the seller must comply to the best of their knowledge. These tax bills just passed and the Dept. of Revenue has not had time to work out all the details.

      Every company, online and B&M, has to deal with this issue when they choose to sell in multiple jurisdictions. It is simply a price of operating a retail business.

      While I understand online retailers may not have the cash flow to handle this administrative burden, the fact is that the buyers of your products are receiving services from their local municipalities and should be paying taxes. In the end, it is not the retailer’s responsibility to pay the tax, it is the consumer. And the Amazon law simply reinforces that idea.

      1. Is that there is a single system that is managed by all the states. It has an electronic interface to:

        1) Provide tax rate for an address.

        2) Accept electronic payment against that address.

        3) Is set up to handle mixed locations for delivery.

        4) Has clear rules for what is taxable, and definitions of how that is determined.

        5) Is competently managed (as opposed to our own DoR).

        And you are wrong in your statement above. While B&M stores have to file where they are located, online does not (unless this law is found to be legal).

        Keep in mind I initially supported both the amazon and software sale tax bills. I agree with them in concept. What I’ve found is that in practice this will be horribly expensive for small companies.

          1. I wish it was – that would be easy to address. The root problem is two things:

            1) Having a humongous number of taxing authorities you potentially have to report to. In Colorado it totals 90. Granted you’re a pretty big company if you have to report to all 90, but even 10 or 20 a state adds up to a ton.

            2) A totally incompetent Depart of Revenue. If you can’t get answers, if it takes 5 – 10 requests to get partial answers weeks later, that again makes it a gigantic job.

            I would much prefer that the corporate income tax was increased to give the state the same net revenue. (I say net because this approach is going to cost the state a lot of money administering it. Increasing the rate on an existing tax adds nothing to the overhead – for either the state or companies.)

            Note that I would prefer a tax on me that had minimal overhead compared to this disaster that officially is imposed only on our purchasers (but in fact has a significant cost imposed on companies).

            And couldn’t Colorado replace Roxy Huber with someone who will do a decent job? It doesn’t have to be stupendous – I’d settle for competent.

    2. 1.  Although there 100s of taxing jurisdictions, most are bound by statewide rules.  The number of taxing jurisdictions is thus not the number of separate determinations of taxability.

      2.  Colorado’s reporting requirement does not require a determination of taxability, only that a sale was made.

      3.  You have to be doing something–i.e., have some sort of connection with–a jurisdiction to be subject to tax collection or reporting responsibilites.

      Thus, your claim that “small companies [will] have to file with something like 500 taxing jurisdictions across the country – each with their own interpretation of what is taxable” is false.

      1. 1) Yes, but you have 96 home rule cities in Colorado alone. I did a rough guess that over 3 years a small company would sell something into 10 of them – and multiplied that by 50 states to get 500. Some states may have a single location, but others may be worse than Colorado. This is a gigantic mess.

        2a) Really? So we report when we sell consulting services? Do we call that out or just lump it in to a total?

        2b) Who do we report to when the software is downloaded to China, configured but not run in Colorado, then run in Georgia?

        3) But by the Amazon law that would be that you sold something to someone in that jurisdiction.

        Also keep in mind that for some small companies, they will sell 1 items for $9.95 into a jurisdiction – and that will be the only sale there because they are just getting started. And then all these requirements to report in that jurisdiction are a cost of that $9.95 sale.

        I picked $9.95 because that is what we sold Enemy Nations CDs for back in the day. This was after it had finished its run in the stores and sales were about 10 – 20 a month. We only sold it because we would get emails begging us to burn them a CD (this was before the Internet was ubiquitous).

        Add in the reporting requirement and selling those CDs would have cost us money.

        1. 1.  Not all of Colorado’s home rule cities have a sales tax.  I think the the current count is approximately 60.  Louisiana has a a similar system.  Almost all other states have a unified approach to sales taxes.  More than twenty states are part of the streamlined sales tax agreement, which standardizes reporting and collections.

          2a.  You are presumably a sales tax payer in Colorado and are not subject to the reporting requirements included in HB-1193.  Since regulations have not been issued yet, it is impossible to answer the question for the hypothetical of what happens if you’re a remote seller into Colorado of services.

          2b.  Depends on where the purchaser is located and what your connections to that jurisdiction are.

          A single CD sale might not create minimum contacts under the equal protection clause, let alone nexus under the commerce clause.  So it might be unrealistic to assume that every CD sale give rise to a reporting obligation (assuming that every jurisdiction adopted a reporting obligation).  

          1. What a relief (not). That’s still a ton.

            2a) My question is about when we sell consulting in Colorado – that’s a sales tax question.

            2b) Yep, now try to get specific answers out of the Department of Revenue. The problem is we can’t tax on “we will get answers someday,” we need answers when the sale occurs.

            3) Might… Again, specific answers are needed.

            There’s a ton of hand-waving going on and that doesn’t deliver specific answers.

              1. The problem is most of our consulting work is to add features to our program that that specific customers want. Others don’t. But it is included in the general program that is then sold to everyone.

                The DoR isn’t sure if that counts as software or a service.

  4. No way there are 150 jobs in jeopardy. Enstrom’s is largely a seasonal employer, staffing up with just-over-minimum-wage help for the Christmas rush but keeping on far fewer than 150 for most of the year.

    Second, it’s a high-end candymaker and seller. In other words, it ain’t cheap. It’s awfully good, but pricey. Shelling out a little more on sales tax isn’t going to break them. Plus, they’ve never been shy about raising prices.

    It should be noted that the current owner’s grandfather, Chet Enstrom, was a longtime state senator from Grand Junction. Republican, of course. The current owner’s brother was a Mesa County commissioner, also Republican. The family continues to support the party and its candidates, so they’ll stick with the party line just as Josh Penry and Janet Rowland tell them to.

  5. I talked to an Amazon affiliate who had gotten the Dear John letter – she made maybe $50. In four years.

    Second: ShopatHome.com, one of the most vocal critics of HB 1193 and whose CEO said they would have to move to Utah if the law went into effect, is HIRING. It’s on Andrew Hudson’s Job List today. In all fairness, the ShopAtHome CEO also blasted Amazon for their actions, siding with the guv and Dems on the point that HB 1193 as signed did not include affiliates.

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