Amazon Threatens to Cut Affiliates in California

MARCH 1, 2011

By SCOTT MORRISON

Ramping up its battle against Internet sales taxes, Amazon.com Inc. has warned it will sever ties with thousands of California-based advertising affiliates if the state government passes legislation requiring the e-commerce giant to collect taxes on items sold to residents.

In a letter to California's Board of Equalization, which oversees the collection of property taxes, sales taxes and other fees, Seattle-based Amazon said four bills introduced to the state legislature are unconstitutional because they would ultimately require sellers with no physical presence in California to collect sales tax merely on the basis of contracts with California advertisers.

"If any of these new tax collection schemes were adopted, Amazon would be compelled to end its advertising relationships with well over 10,000 California-based participants in the Amazon 'Associates Program'," wrote Paul Misener, Amazon's vice president for Global Public Policy, in a letter dated Feb. 24.

The U.S. Supreme Court in 1992 ruled that companies aren't required to collect state sales taxes if they do not have a physical presence in that state.

Some cash-strapped states, however, have passed legislation requiring Internet retailers to collect tax if they have marketing affiliates in those states. The affiliates are typically websites that provide links to Amazon or other online retailers in exchange for a cut of any resulting sales.

Amazon has responded by ending affiliate programs in North Carolina, Rhode Island and Colorado. Amazon has also said it will cut ties with Illinois-based affiliates if the state governor signs recently passed legislation into law. Amazon is also at odds with state governments in Texas and New York.

In his letter to the Board of Equalization, Mr. Misener noted that "similar legislation in other states has, counterproductively, led to job and income losses and little, if any, new tax revenue."

California passed such as law in 2009, but it was vetoed by the governor.

California Board of Equalization member Senator George Runner said in a statement that Amazon's letter made it clear the bills in question would have negative impact on jobs in the state.

"In no uncertain terms, Amazon has made it clear to me that the checks they send Californians will be cut off overnight if pending legislation aimed at regulating their operations becomes law," said Mr. Runner.

I am from California, so this is not the first that I have heard of the huge taxes that are being imposed in order to pay off the massive amount of debt. It's a really unfortunate situation however, that so many California companies will suffer because of the state that they reside in. California is in desperate need of a structural revamping, because soon enough people and companies will be moving out, because taxes are simply too high.