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Amazon Ending Affiliate Agreements with California Residents Over New Sales Tax

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Amazon Headquarters in Seattle by Wonderlane on Flickr

Amazon Headquarters in Seattle by Wonderlane on Flickr

A California law set to take effect July 1 will require retailers like Amazon with presences in California to charge sales tax on purchases made by state residents.

One way that “presence” would be established is through popular affiliate programs through which companies pay out commissions for customer referrals; the other is if the company has related business operations in the state—in the case of Amazon, its Kindle developer, Lab126 Inc. in Cupertino.

Amazon has responded to the new legislation by vowing to eliminate affiliate program relationships with California residents. Amazon’s affiliates program currently allows bloggers and other website owners to sign up for the program and refer customers to Amazon’s products through links, banners, and other advertisements; percentages of purchases made via these “click-throughs” are then paid out to affiliates.

Amazon has already told its affiliates in California that they’d have to move to another state in order to continue to receive payments, and some businesses are reportedly considering doing just that according to The Los Angeles Times.

The new sales tax collection is expected to bring in over $300 million annually for the state and local California governments, but this type of taxation is nothing new to legislatures around the country. Six other states have passed similar measures, and Amazon has not been successful in challenging them as of yet; the company has put sales tax into an escrow account in New York while its case makes its way through the appeals process there.

Amazon has apparently not taken any steps to challenge the California law at this point, but the idea that online retailers can escape state sales tax does look to be on its way out—and may result in those large online companies losing their competitive pricing edge over smaller in-state businesses and other retailers who have to collect sales tax by law.

What do you think of this type of legislation?

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June 30th, 2011 at 10:50 am