Amazon, Overstock Cut Ties With California Affiliates

30 Jun, 2011 By: Chris Tribbey

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Amazon.com cut ties with roughly 10,000 California affiliates June 29, and Overstock.com quickly followed suit, after California passed a law that forces online retailers to collect sales tax in the state.

The law was passed as part of a state budget package approved by Gov. Jerry Brown, and California estimates it could bring in an extra $200 million a year. Because the law would only affect businesses with a physical presence in the state, online retailers like Amazon have told California affiliates it would cut ties — as it’s done with affiliates in Connecticut and Illinois — if an online sales tax law was passed. The affiliates program gives a cut of sales to websites that refer customers to Amazon.

“Looking only at Amazon.com LLC’s sales to California consumers, [the California State Board of Equalization] estimates that this bill would increase state and local revenues by $83 million annually,” a state analysis of the bill concludes. “This figure does not include revenues associated with other as yet unidentified retailers that could be impacted by this bill.”

Amazon was having none of that, immediately informing its California affiliates that the “unconstitutional and counterproductive” forced the company to cut ties.

“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,” an Amazon letter to affiliates reads. “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.”

Overstock.com informed its California affiliates that it would also have to cut ties.

“The bill will result in our discontinuation of the services of California-based internet advertizing affiliates,” Mark Griffin, VP of legal at O.co, said in a statement. “That effect may be small as we have observed in these instances that the ad business terminated, goes to advertisers in other states and the ad traffic to our site continues. It is unfortunate that the bill targeted California business, but we believe the law is unconstitutional and necessitated this decision. There will be no other changes to the way we do business.”

The law in California is similar to those other states have passed — including Connecticut, Illinois, North Carolina, Arkansas, New York and Rhode Island — which seek to get around a 1992 Supreme Court ruling that found retailers could not have taxes imposed on them unless they had a significant physical presence in the state.

Amazon is currently in court with the state of New York over the constitutionality of its law, and likely won’t take legal action against California until that case is resolved, according to Steve DelBianco, executive director of NetChoice, a coalition of trade associations, businesses that operate over the Internet, and online consumers.

“The only loser in this is California,” he said, explaining that the law would not bring in any new out-of-state revenue, and that any new taxes would be paid by Californians. “They’ll have to explain why they’re raising the taxes of their constituents.”

But Bill Dombrowski, president and CEO of the California Retailers Association, said the law simply levels the playing field between brick-and-mortar and online retailers.

“Brick‐and-mortar stores collect sales tax every single day as required by law while their out-of-state online competition fails to do so providing an unfair advantage resulting in a loss of jobs,” he said in a statement. “Simply stated, this is not fair and hurts the same people who pay property taxes, income taxes and support our communities.”
 

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