Amazon.com has cut off its affiliates in Colorado in response to a new law that requires Web retailers to send a statement to their customers every year of how much tax they should be paying on their purchases.

Amazon has taken the step of severing ties to affiliate Web sites based in the state, which direct visitors to Amazon to make purchases and thereby earn a share of the revenue. States like Colorado are making more of an effort to collect sales tax on online purchases to help make up for revenue shortfalls.

“The regulations are burdensome and no other state has similar rules,” the company wrote in an e-mail to the sites informing them of the move. “The new regulations do not require online retailers to collect sales tax. Instead, they are clearly intended to increase the compliance burden to a point where online retailers will be induced to ‘voluntarily’ collect Colorado sales tax — a course we won't take.”

Colorado Governor Bill Ritter criticized Amazon’s decision. “Amazon has taken a disappointing — and completely unjustified — step of ending its relationship with associates,” he said in a statement. “While Amazon is blaming a new state law for its action, the fact is that Amazon is simply trying to avoid compliance with Colorado law and is unfairly punishing Colorado businesses in the process.”

Amazon has dropped its affiliates in at least two other states, Rhode Island and North Carolina, in response to attempts to collect sales tax because of the affiliates’ local presence. The Seattle-based company has also been fighting a similar law in New York State. The company contends that Colorado took the wrong approach in taxing Internet sales.

“There is a right way for Colorado to pursue its revenue goals, but this new law is a wrong way,” said Amazon. “As we repeatedly communicated to Colorado legislators, including those who sponsored and supported the new law, we are not opposed to collecting sales tax within a constitutionally-permissible system applied even-handedly. The U.S. Supreme Court has defined what would be constitutional, and if Colorado would repeal the current law or follow the constitutional approach to collection, we would welcome the opportunity to reinstate Colorado-based associates.”

The governor, however, contends that Amazon disregarded efforts to modify the bill to avoid hurting the affiliates. “My office worked closely with Amazon’s affiliates and associates to modify House Bill 1193 to specifically protect small businesses, avoid job losses and provide a fair, level playing field for online retailers and Main Street, brick-and-mortar retail shops alike,” said Ritter. “Amazon’s position is unfortunate, and Coloradans certainly deserve better.”

The California Senate recently passed its own Amazon tax as part of the state budget, but the California Assembly has not yet approved it. Governor Arnold Schwarzenegger said last year he would veto such a tax. The company has not yet said what it is doing with the affiliate sites there if the tax passes. However, California is such a large market that the company may choose to keep its affiliate program in place, as it has so far in New York.

The company currently charges sales tax in New York, as well as Kansas, Kentucky, North Dakota and its home state of Washington.

Other states, including Illinois, Iowa, Maryland, New Mexico, Vermont and Virginia are also reportedly mulling the imposition of taxes on e-commerce sites that target their residents, even if they don’t have a physical presence in the state to establish nexus. Expect to see more battles by Amazon and fellow e-tailers such as Overstock.com, which has also dropped some of its affiliate sites in states that passed similar laws.


Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access