Amazon protests California Web-sales tax plan

NEW YORK Thu Jun 30, 2011 10:29am EDT

A box from Amazon.com is pictured on the porch of a house in Golden, Colorado July 23, 2008. REUTERS/Rick Wilking

A box from Amazon.com is pictured on the porch of a house in Golden, Colorado July 23, 2008.

Credit: Reuters/Rick Wilking

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NEW YORK (Reuters) - Amazon.com Inc warned its 10,000-plus California sales affiliates on Wednesday that it may be forced to sever ties with them should the state begin taxing their online sales.

The wealthiest U.S. state became the latest -- on the heels of Illinois and Connecticut -- to be dropped by Amazon from its nationwide sales-affiliate program, which relies on in-state websites to drive its own online business.

Its affiliates, paid a fee when they funnel traffic to Amazon that results in a sale, have found themselves in the middle of a battle between Amazon and several states that argue the online retailer has a duty to collect sales taxes when those affiliates operate within their state.

Amazon counters that such taxes spur job and income losses. On Tuesday, California's legislature passed a budget that incorporates such an online sales tax and on Wednesday, Governor Jerry Brown signed the relevant bill.

"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 said in an email sent to Californian affiliates Wednesday.

"As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective."

Analysts say Amazon could cut its partnership with affiliates in more U.S. states that require the online retailer to collect sales taxes.

Many traditional chains such as Best Buy and Sears have openly voiced concerns about online-only retailers gaining an unfair advantage by avoiding sales taxes in states where they do not maintain a corporate presence.

Lawmakers in states -- many facing huge budget deficits -- say Amazon and other online retailers such as Overstock.com have a duty to collect tax because its affiliates operate locally.

Amazon has already announced plans to cancel its affiliate program in Illinois in response to the state's new law to target online retailers. Texas is considering taxing online sales as well.

(Reporting by Alistair Barr; Writing by Eddie Chan; Editing by Lisa Shumaker)

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Comments (2)
drizzt134 wrote:
This is a big opportunity for smaller states to take business away from these big, old and inefficient states. I guarantee you, the first state to say they will not tax online sales at all costs will get 10000 new Amazon affiliates (and probably more). If there is anyone that is still wondering why California is going broke, this is the prime example of why. Businesses don’t like to be taxed. Why should business pay for financial mistakes lawmakers and local government make. They want to spend billions of dollars for non-sense project, then turn back and look at the businesses to fill the hole they created in the budget with taxes. I wonder if any of California lawmakers ever heard of a term called sustainability. Looks like they will only be satisfied when all the businesses leave California.

PS. I left California and moved to another state due to taxes myself. I am living a very comfortable life with the +5% income I gained for not paying California income taxes. Good luck to California but it looks like the end of the road for them.

Jun 30, 2011 1:52am EDT  --  Report as abuse
ZorekR wrote:
Way to go California. Tax away your jobs and business opportunities. The power to tax is the power to destroy.

Jun 30, 2011 1:55am EDT  --  Report as abuse
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