Amazon cans affiliate program in California after Gov. inks tax law

Amazon.com and other online retailers must collect sales tax on purchases that their California customers make in the state as part of a new law that was signed by Gov. Jerry Brown on Wednesday. The decision has led Amazon to shut down its affiliate program in the state, a move that the company had threatened earlier this week.

“Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011,” the company wrote.

Amazon also recently cut ties with affiliates in Connecticut and Arkansas, but there’s a lot more at stake in California since it is the nation’s most populous state.

Reaction to Amazon’s decision has been mixed, with technology journalist Danny Sullivan writing in an Open Letter to Jeff Bezos that Amazon is making “pawns” out of its affiliates in the battle. He writes:

First, it’s fair to the affiliates that have helped build your business. You could collect sales tax and continue to have them support you, rather than suddenly make them all angry. Angry perhaps at the state, which is what you hope. But also angry at you. For another, isn’t it time you grew up and became a real business that can compete against the bricks-and-mortar shops you undercut? Can’t you still win against them, even if you play on a more level playing field?

Meanwhile, online news site ReveNews reports that about 10,000 of California’s estimated 25,000 affiliates are associated with Amazon.com. Britt Raybould notes that those affiliates generate $124 million in income tax annually. She writes.

So with the stroke of pen, Governor Brown puts at risk $124 million in state revenues with no guarantee that anything close to an additional $200 million will be added to the state’s coffers.

Here’s the full letter that Amazon sent to affiliates:

Hello,

Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011. Those California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned before today will be processed and paid in full in accordance with the regular payment schedule.

You are receiving this email because our records indicate that you are a resident of California. If you are not currently a resident of California, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state in the near future please contact us for reinstatement into the Amazon Associates Program.

To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect your ability to purchase from Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com.

We have enjoyed working with you and other California-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to California residents. As mentioned before, we are continuing to work on alternative ways to help California residents monetize their websites and we will be sure to contact you when these become available.

Regards,

The Amazon Associates Team

John Cook is co-founder of GeekWire. Follow on Twitter: @geekwirenews and Facebook.

  • http://frugalmechanic.com/ Eric Peters

    One question I always had around this was whether or not you just had to setup a Shell Company based out of another state/PO box type of address/Employee ID #/etc then on the books Amazon would be paying a company not in California?  The letter above talks about residents, and doesn’t mention companies, which is kind of interesting, did the nexus law only apply to individual tax ID numbers?

    • http://www.facebook.com/pubgoers Casey Edwinson

      Depending how hard up the state is to collect they can
      investigate how much of a presence you actually have in the PO Box state.

      • http://frugalmechanic.com/ Eric Peters

        Seems like Amazon somehow already gets around Nexus themselves despite owning  wholly-owned subsidiaries like: en.wikipedia.org/wiki/A9.com and en.wikipedia.org/wiki/Lab126 that operate in CA

  • http://www.hasoffers.com Peter Hamilton

    We’ve been following the Nexus Tax as it has passed or failed in various states.  California has been trying to pass this for quite some time, and I am sad to say it is another example of politicians looking to squeeze out dollars while not understanding the online advertising landscape.  Stay up to date on this stuff by following the http://performancemarketingassociation.com/  

    • http://www.revenews.com Angel Djambazov

      Rebecca Madigan and the PMA have fought a commendable if loosing fight against such legislation.

  • http://www.facebook.com/pubgoers Casey Edwinson

    Time for affiliates to head to tax free Oregon!

    • Sarah242k

      Oregon wont be tax free for long (relative), mark my words.

  • Ron Halleen

    So this means amazon will not be advertising with google?

  • http://twitter.com/chrisamccoy Chris McCoy

    I’m honestly confused by this. Why doesn’t Amazon pay taxes like brick and mortars? Seems like the right thing to do as a company operating in the United States. 

    Are they waiting for federal legislation on this? If so, I could be on board with temporary moves like this, but if this is long term strategy–to loophole out of taxes–I just don’t understand how it’s good for America. E-Commerce, as sexy as it is, undercuts the retail experience that built many towns from the ground up. Looping out is a double whammy–to both the local and state economies they’re operating in. I just don’t get it. With that said, as much as I love Amazon, this issue of e-commerce and taxes is a HUGE ONE moving forward for the American economy. For the sake of our country and thousand’s of local communities (23k of them), I hope America gets it right.

  • http://twitter.com/chrisamccoy Chris McCoy

    I’m honestly confused by this. Why doesn’t Amazon pay taxes like brick and mortars? Seems like the right thing to do as a company operating in the United States. 

    Are they waiting for federal legislation on this? If so, I could be on board with temporary moves like this, but if this is long term strategy–to loophole out of taxes–I just don’t understand how it’s good for America. E-Commerce, as sexy as it is, undercuts the retail experience that built many towns from the ground up. Looping out is a double whammy–to both the local and state economies they’re operating in. I just don’t get it. With that said, as much as I love Amazon, this issue of e-commerce and taxes is a HUGE ONE moving forward for the American economy. For the sake of our country and thousand’s of local communities (23k of them), I hope America gets it right.

    • http://frugalmechanic.com/ Eric Peters

      Amazon has said a number of times they want it at the federal level: http://www.boe.ca.gov/members/runner/newsreleases/Amazon_Letter_to_Senator_Runner.pdf

      “California instead should heed  the  U.S.  Supreme Court.  A national resolution, involving tax 
      simplification evenhandedly applied, is the legally-permissible path for states to follow.  The approaches 
      of AB 153, AB 155, SB 234, and SB 655  could be used to undermine the purposes and viability of the 
      national streamlining effort and, thus, similar bills have been opposed by the relevant task force of the 
      National Conference of State Legislatures, the Council on State Taxation, and the Business Advisory 
      Council to the Streamlined Sales Tax Project (“SSTP”), all of which have supported SSTP instead.”

    • http://twitter.com/Vroo Vroo (Bruce Leban)

      There is a long tradition of Americans evading taxes and buying on the internet is an easy way to do it. California isn’t creating a new tax, just asking Amazon to collect the tax that is already due. That bit about “heeding the Supreme Court” is BS. Amazon doesn’t need federal law to collect this tax. They could voluntarily do it in any state. They just don’t want to. They’d rather stand up for the tax cheaters. 

      • Guest

        The tax that is due on out-of-state mail order purchases is use tax, which is owed by the purchasers and not by sellers. If California wanted to collect the tax that she is due, she would pursue direct legal action against her own citizens.

      • http://www.revenews.com Angel Djambazov

        There is a Supreme court precedence in this in Quill Corp. v. North Dakota, this ruling focused on catalogers but impacts internet commerce as well by defining what constituted a physical presence in the state and the requirement to collect and pay sales tax. Amazon, nor Overstock or any other etailer for that matter, does not meet those requirements to pay such a tax.

        • Dickiejanes

          What does constitute a physical address? I’m guessing if your office is based in CA but LLC is registered elsewhere then you don’t get around it all as a publisher?

  • Lobbyjones

    State governments fail to grasp the full impact of legislation like
    this.  They are hurting the small businesses that get a boost from
    affiliate sales much more so than they impact Amazon.   Don’t forget,
    these laws affect Commission Junction, Linkshare, BuyAt, and more and
    will ensure that people pay sales tax with EVERY online purchase including at places
    like eBay.

    Our blog article shows how it impacts business in ways the
    government surely has not considered in their limited view with their
    “grab-the-money goggles” on.

    http://www.cybersprocket.com/2011/news-articles/is-government-legislation-killing-affiliate-businesses/