Amazon followed through on its threats to cut ties with its California affiliates in order to avoid compying with a new state law mandating sales-tax collection.
Amazon.com followed through on its threats late Wednesday and severed ties with 10,000-plus California sales affiliates after Governor Jerry Brown signed into law a bill designed to force online retailers to collect sales taxes.
The new law requires Amazon.com and other online retailers to collect sales taxes from California residents based on Amazon's business relationship with its in-state affiliates. The law is modeled on similar efforts in other states, including Illinois, Connecticut, and New York.
Amazon, in turn, has terminated its affiliate programs to avoid complying with such laws. (New York, where the company is challenging the law in court, is an exception.) The company argues that it has no choice, since state lawmakers are attempting to define its affiliates as a de facto in-state physical presence -- thus requiring the company to collect sales tax on state residents.
"We oppose this bill because it is unconstitutional and counterproductive," Amazon wrote in a statement to its California affiliates notifying them of the change. "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. 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."
It is not surprising that cash-strapped states are seeking ways to raise revenue, especially as federal funds begin to evaporate, but it is unfortunate that those actions are playing into the hands of big-box retailers and that they could potentially make it harder for small businesses. If progressive California has taken this stand, what might we expect out of other states that are weighing similar measures?
Heather Clancy is an award-winning business journalist with a passion for small businesses, green technology and corporate sustainability issues. Her articles have appeared in Entrepreneur, Fortune Small Business, The International Herald Tribune and The New York Times. Follow her on Twitter.