June 30, 2011

Amazon Dropping Affiliates In California Due To New Law

Amazon said Wednesday that it will stop working with affiliates in California since the state has passed a law that forces online retailers to collect sales tax there.

The company said in an email Wednesday to California-based affiliates that it would cut ties with those who reside in the state if the law became effective.  Governor Jerry Brown signed the law Wednesday as part of a larger state budget package.

The rule requires retailers like Amazon who are Internet-based to collect state taxes if they have in-state affiliates.

"We oppose this bill because it is unconstitutional and counterproductive," Amazon wrote in its letter to associates. "Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue."

The law is projected to net $200 million annually for the state.  Other states have also passed similar legislation in hopes to bring in more tax revenues.

"It's odd that a company would voluntarily dilute its business in the most populous state in the country simply because it's being asked to collect what is lawfully owed," Mark Hedlund, a spokesman for Senate President Pro Tem Darrell Steinberg, said in a statement.

Billions of dollars are at stake as more states begin looking into ways to generate more revenue from online companies without violating a 1992 U.S. Supreme Court ruling that prohibits a state from forcing businesses to collect sales taxes unless the business has a physical presence in the state. 

States are trying to skirt the Supreme Court ruling by passing laws that broaden the definition of physical presence. 

Amazon has already nixed affiliates in Arkansas, Connecticut and Illinois due to the passage of similar online sales tax laws. 

Overstock.com has also shuttered its affiliate program in several states due to similar laws as well.

Amazon works with 10,000 affiliates in California.  Steve Gill, an accounting professor at San Diego State University, told CNN that the law could force some affiliates to shut down their businesses.

He said it could be "devastating for certain businesses in California."


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