I appreciate what both Mayor Ness and Dorkus are saying. Amazon.com and the 1000s of other online retailers should collect sales tax. I absolutely agree. Amazon counts for 25% of all Internet sales, but a law shouldn't just target them, it should also apply to the 75% of other online retailers, including those based in the state of Minnesota that don't collect sales taxes in other states.

But, Amazon isn't the only business that is dropping its Minnesota website advertisers. I live in Grand Marais and run a website business that depended on advertisement such as this. Amazon was one of my clients, but not my biggest client. My other clients have dumped me as well so that they don't have to collect sales tax from Minnesotans. (Please, note that according to Minnesota law that you are already required to pay taxes on your online purchases. If you don't, you're breaking the law. Both of you paid those taxes last year, didn't you? I did.)

Not only did Amazon and my other out-of-state clients stop doing business with me, it happened to 5,200 Minnesotan businesses. Some of those businesses brought in over $1 million a year in revenue from out-of-state sources and they had 100s or 1000s of advertising clients. Most of those clients are dumping everyone in Minnesota. This Affiliate Nexus Tax is putting almost all of those 5,200 businesses out-of-business.

Those 5,200 Minnesotan-owned businesses generated over $500 million a year and paid $35 million a year in state income taxes. The Affiliate Nexus Tax was estimated to bring in $5 million to the state, but I think they underestimated the number of online retailers that would pull out. In other states that passed an Affiliate Nexus Tax, sale taxes actually went down and not up.

Now, think about this. Because these 5,200 businesses lost their clients, they won't be able to produce income. In other states, 1/3rd left the state (Governor Walker in Wisconsin is welcoming them with open arms), 1/3rd went out of business and 1/3rd downsized. If we just directly correlate the lost income tax to these numbers, Minnesota is losing $23.3 million in income taxes.

So, if we take the $23.3 million lost in income taxes and subtract the overly optimistic $5 million gained in sale taxes, Minnesota is actually losing about $18.3 million in revenue. It's likely much higher than that, because the companies that make the highest proportion of the revenue are more likely to leave the state.

But worse, the law devastated 5,200 businesses in the state. Some will leave and never return. Some such as me will downsize or sell out to an out-of-state buyer. Personally, it feels like getting laid off. I feel and have heard other Minnesota bloggers and marketers feel that they are helpless and don't know what to do, because they loss of income is so significant that they won't be able to pay their bills. Luckily for me, I own two other businesses in Minnesota, so while I'm really going to have to cut back and watch the budget, I'm not completely ruined. I know someone who quit her job last year, because her blog was making $3000 a month from Amazon and other companies that have now stopped doing business with her. She's ruined.

Now, we can blame Amazon and the 1000s of other business that dropped Minnesota websites and say that it is their fault or we can blame the legislators who knew this would happen. I explained it both to Bakk and Dill who are mine reps, but they voted for this anyway. They voted to put 5,200 businesses out of business.

Worse still: It isn't even clear that this law is constitutional. It was ruled unconstitutional under the Commerce Clause of the U.S. Constitution by Judge Robert Lopez Cepero on April 25, 2012 in an Illinois Circuit Court. That lawsuit needs to work its way to the U.S. Supreme Court, which leaning the way it does, is likely to rule that Affiliate Nexus Laws are unconstitutional. But before that happens, it'll have killed this business model in Minnesota. It's also likely that lawsuits will happen in Minnesota.

So, what can be done?

First, eliminate this law in the state before it causes more harm to the 5,200 businesses that if affects. Or, put it on hold until it's known to be constitutional or not at the Supreme Court.

Second, get the U.S. House of Representatives to pass the Marketplace Fairness Act, which already passed this year with overwhelming bipartisan support in the U.S. Senate. It's in committee in the House right now.

When the Marketplace Fairness Act passes, it levels the playing field across the nation in every single state. It also forces states to simplify their sales tax codes, so retailers in other states don't have to wade through complicated and confusing tax codes. Minnesota already meets the new standard, so it makes it easy for Minnesota retailers to collect sales taxes in other states.

Until that passes, the only thing that the Minnesota Affiliate Nexus Tax accomplished was to devastate 5,200 Minnesota businesses, drive businesses out of the state and cause a net loss in tax revenue in the state.

Governor Dayton needs to call a special session to protect the businesses that this hurts.

@edgeways - No, online retailers don't write state laws. Minnesota lawmakers write the laws.

Businesses can choose to do what they like based on the laws. If the laws are unfriendly to businesses, then they can choose to do business elsewhere. That's what they did in this case.

It's not just Amazon though. 1000s of online retailers, such as Moosejaw, Backcountry.com, Overstock.com, and many more, have dropped their Minnesota marketers because of this law. So if you're going to blame retailers, then you have to blame them as well.

I blame lawmakers who knew that this would happen and choose to destroy 5,200 businesses in the state.

@mlatsch - It's number two. I link to Amazon.com from my website and drive traffic to them. Then they pay me an advertising fee if the traffic converts to a sale.

@lojasmo - It devastated my local business and many of other people I know. That is if you define devastate as making a living from the income generated by the business to scrambling to figure out how to make a living, because the business no longer makes the money. Plus, it's not just Amazon. It's 1000s of online retailers that dumped their Minnesota affiliates. Many of the retailers, you've probably never heard of. For evidence, just look at other states that passed this same law and you'll see the impact.

A similar law was declared unconstitutional under the U.S. Constitution's Commerce Clause in an Illinois circuit court, so I think that Amazon has some backing to their claim.

@andrew - You wrote, "These "marketing affiliates" are huge producers of spam, so the news isn't all bad." Some are that's for sure, but not all. I think that if you're a canoeist or kayaker that you'd find my site useful, because it consists of high-quality content written by experienced paddlers and American Canoe Association-certified sea kayaking instructors.

Don't forget about coupon comparison sites, deal sites and many other types of sites. Fat Wallet is one site of this variety. When Illinois passed their tax, Fat Wallet moved from Illinois to Wisconsin.