Thursday, June 30, 2011

Amazon to shut down California affiliates over new sales tax law

By Jacqui Cheng

If things continue down their current path, Amazon’s affiliate program will eventually go extinct in the US. Late Wednesday, California joined the growing list of states attempting to collect sales tax from online retailers like Amazon in an effort to help close the state’s vast budget deficit. Amazon, in typical fashion, has aggressively pushed back, warning its California-based affiliates that they’ll have their revenue streams cut off as of September 30 if the law ends up being enacted.

California’s new law, signed by Governor Jerry Brown on Wednesday, requires online retailers to collect sales tax even if they have no physical presence in the state. How does that work when federal law states they have to have a brick-and-mortar store to qualify? Like the many other states before it, California counts Amazon affiliates who reside in California as a “physical presence.” So, if Joe Blow runs a personal blog with affiliate links to Amazon products (you know, to make a few bucks on the side), he is effectively “selling” Amazon products and making money from them via his home in California.

Because of this “physical presence” technicality, the state wants Amazon to begin collecting sales tax from California residents, and subsequently pay it back to the state.

Amazon’s reaction has been predictable: the company sent a letter to its affiliates in the Golden State earlier in the day on Wednesday warning that the affiliate program may soon be cancelled there due to the impending state law. “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,” Amazon wrote. “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.”

Not that the measures are necessarily helping much in terms of states collecting more tax revenue—Rhode Island General Treasurer Frank T. Caprio was recently quoted, saying, “The affiliate tax has hurt Rhode Island businesses and stifled their growth, as they’ve been shut out of some of the world’s largest marketplaces, and should be repealed immediately.” FatWallet, which itself acts as a giant affiliate to Amazon and Overstock, ended up moving from Illinois to Wisconsin over the Illinois “Amazon Tax.”

Full article: http://arstechnica.c … ew-sales-tax-law.ars