Amazon ends affiliate program in Illinois

Internet retailer cuts off affiliates after Illinois' governor signs bill requiring in-state affiliates to collect state sales tax on purchases made by Illinois residents.

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Amazon.com is ending another affiliates program over states' efforts to collect sales tax.

The Internet retailer notified its affiliates in Illinois yesterday that it would sever their business relationships after Illinois Gov. Pat Quinn signed into law a bill that would require in-state affiliates to collect state sales tax on purchases made by Illinois residents. Affiliates place ads for retailers on their Web sites and get paid when customers make purchases via the ads.

Amazon, which has opposed similar efforts in other states, informed its some 9,000 Illinois affiliates in a letter that it would terminate the program on April 15:

For well over a decade, the Amazon Associates Program has worked with thousands of Illinois residents. Unfortunately, a new state tax law signed by Governor Quinn compels us to terminate this program for Illinois-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers--including but not limited to those referred by Illinois-based affiliates like you--even if those retailers have no physical presence in the state.

We had opposed this new tax law because it is unconstitutional and counterproductive. It was supported by national retailing chains, most of which are based outside Illinois, 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 its enactment forces this action.

As a result of the new law, contracts with all Illinois affiliates of the Amazon Associates Program will be terminated and those Illinois residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, or SmallParts.com. Please be assured that all qualifying advertising fees earned prior to April 15, 2011 will be processed and paid in full in accordance with the regular payment schedule. Based on your account closure date of April 15, 2011, any final payments will be paid by July 1, 2011.

The letter ended by saying that "if this situation is rectified," Amazon would be interested in resuming its business relationship with its affiliates.

Gov. Quinn said in a statement that the "law will put Illinois-based businesses on a level playing field, protect and create jobs, and help us continue to grow in the global marketplace."

The move is Seattle-based Amazon's latest salvo in its battle with states over sales tax collection. Cash-strapped states claim online retailers that don't collect taxes are depriving states of revenue and enjoy an unfair competitive advantage over local retailers that must collect taxes. However, the U.S. Supreme Court ruled in 1992 that retailers can't be forced to collect sales tax on out-of-state shipments unless they have offices in those states.

Earlier this month, Amazon threatened to cut off more than 10,000 affiliates in California if state lawmakers pass legislation designating affiliates as employees, allowing purchases made through their referrals to state residents to be taxed.

Amazon has closed its affiliate programs in Colorado, North Carolina, and Rhode Island over similar disputes. And in February, Amazon threatened to close a distribution facility in Texas after receiving a $269 million bill for uncollected sales taxes.