Amazon Cancels California Associates Contracts

As promised and expected by most, Amazon has cancelled its contracts with California-based Associates. I set up an account for my daughter, which we never activated for payment of commissions, so got an email on June 29, 2011 that reads as follows:

"Hello,
Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011. Those California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned before today will be processed and paid in full in accordance with the regular payment schedule.
You are receiving this email because our records indicate that you are a resident of California. If you are not currently a resident of California, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state in the near future please contact us for reinstatement into the Amazon Associates Program.

To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect your ability to purchase from Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com.

We have enjoyed working with you and other California-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to California residents. As mentioned before, we are continuing to work on alternative ways to help California residents monetize their websites and we will be sure to contact you when these become available.
Regards,
The Amazon Associates Team"

As I noted in a March 9, 2011 post, the California legislation is not the same as the New York legislation in that NY offered amnesty for complying (see post). I also questioned the revenue estimates and why California doesn't do something more productive like work with the other states and Congress for a federal solution applicable to all states and all remote vendors. One good thing that California did in 2011 was enact SB 86 which will enable consumers to use a look-up table to determine their use tax liability (rather than have to keep records). This is a start towards improved use tax compliance, but without education and a law requiring taxpayers to make an entry on the use tax line on their state income tax form and indicate whether they filed a separate use tax form, it won't be as powerful as it otherwise could be (3/19/11 post).

I wonder if Amazon will find an alternative way for California residents to monetize their websites. It seems that one solution would be to change the arrangement to be cents per click rather than getting a commission. While I am not convinced that the payment arrangement is enough to distinguish advertising from sales commissions, it is likely to help as the Associate would get paid even if no sales are made (maybe).

Some think all of this will hurt Amazon's sales. I don't think so. The Amazon decision in January 2009 in New York noted that Amazon generated less than 1.5% of its NY sales from the Associates.* Today, people have heard of Amazon and can easily type Amazon.com into their browser and get there. Also, as long as the prices are better than other places (ignoring the sales tax even), they will do well. And, free shipping for orders over $25 is a good marketing approach.

But, are people fed up with Amazon and willing to go to other sites to make their purchase? Good question. I must admit, although I really like using the Amazon site for purchases, I have also checked prices at bn.com and if similar, have on occasion, purchased there (collecting sales tax is not a big deal for me as I have been keeping my records for many years and always pay my use tax!).

* Per the case (available free from The Public Library of Law), "Amazon further states that Associates' referrals to New York customers are not significantly associated with its ability to establish and maintain a market for sales in New York because they account for less than 1.5% of its New York sales (Amazon Mem at 27)."

What will you do - keep buying from Amazon or go elsewhere? What do you think California should do to reduce its use tax gap?