Posted by Michael Laprarie

It seems that California governor Jerry Brown is leaving no stone unturned in his search for new revenue to plug the state's enormous budget deficit.  But he might have really stepped in it this time:

Gov. Jerry Brown has signed into law California's tax on Internet sales through affiliate advertising which will immediately cut small-business website revenue 20% to 30%, experts say.

The bill, AB 28X, takes effect immediately. The state Board of Equalization says the tax will raise $200 million a year, but critics claim it will raise nothing because online retailers will end their affiliate programs rather than collect the tax.

Amazon has already emailed its termination of its affiliate advertising program with 25,000 websites. The letter says, in part:

(The bill) specifically imposes the collection of taxes from consumers on sales by online retailers - including but not limited to those referred by California-based marketing affiliates like you - even if those retailers have no physical presence in the state.

We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.

The new law won't affect customers, Amazon said, but added that the immediate termination of the affiliate program also applies to endless.com, myhabit.com and smallparts.com.

And there you have it.  Rather than subject itself to the expensive red tape of having to track all the bonus money given to California-based Affiliates, then calculate the taxes owed, then withhold the taxes and pay them directly to California (because, guess who would be held responsible in the event that the affiliates didn't voluntarily pay) Amazon is simply terminating its relationship with its California-based affiliates.  Other online retailers or content providers with similar programs will probably quickly follow suit.

This will be a huge blow to bloggers and freelance website owner/managers, who often depend on affiliate programs or click-through advertising as a primary source of the revenue that pays for website hosting and up-keep. 

And when websites start closing down, or when their owners dissolve their California companies and file for business incorporation in other states, the Mainstream media will once again be stumped by the UNEXPECTED failure of this bill to raise even a fraction of the revenue that was originally projected.

It has been said that insanity is repeating the same failures over and over again, hoping to achieve a different result.  I think we can now safely say (as if we hadn't suspected all along) that the government of California is truly insane.

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