Want CNET to notify you of price drops and the latest stories?

Amazon threatens to cut Calif. affiliates over taxes

Internet retailer says it will sever ties with more than 10,000 affiliates if state lawmakers pass legislation requiring it to collect sales taxes from state residents.

Steven Musil Night Editor / News
Steven Musil is the night news editor at CNET News. He's been hooked on tech since learning BASIC in the late '70s. When not cleaning up after his daughter and son, Steven can be found pedaling around the San Francisco Bay Area. Before joining CNET in 2000, Steven spent 10 years at various Bay Area newspapers.
Expertise I have more than 30 years' experience in journalism in the heart of the Silicon Valley.
Steven Musil
2 min read

Amazon.com has threatened to cut off more than 10,000 affiliates in California if state lawmakers pass legislation requiring the Internet retailer to collect sales tax from state residents.

Seattle-based Amazon said four bills introduced in the state legislature are unconstitutional because they would require sellers with no physical presence in California to collect sales tax from its residents, Paul Misener, Amazon's vice president for global public policy, wrote in a letter (PDF) to the California Board of Equalization, the state agency responsible for collecting property and sales taxes.

"If any of these new tax collection schemes were adopted, Amazon would be compelled to end its advertising relationships with well over 10,000 California-based participants in the Amazon 'Associates Program,'" Misener wrote in the letter, dated February 24.

The letter is the latest move for Amazon 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.

Amazon has no physical presence in California, but some states have enacted laws that require retailers to collect sales tax if they have affiliates based in that state. Affiliates place ads for retailers on their Web sites and get paid when customers make purchases via the ads.

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.

"This is an imminent threat to California jobs," California Board of Equalization member Senator George Runner said in a statement (PDF). "In no uncertain terms, Amazon has made it clear to me that the checks they send Californians will be cut off overnight if pending legislation aimed at regulating their operations becomes law."

A Board of Equalization analysis (PDF) found that projected revenue from the passage of the pending Assembly bills would drop about 50 percent if Amazon ended its affiliate program. Additionally, "the termination of affiliate programs would have an adverse impact on state employment, which in turn would lead to lower revenues from sources such as the personal income tax and the corporation tax," the report concluded.