http://static1.firedoglake.com/1/files/2011/06/amazon2.jpgI received a little note last night from Amazon.com. As part of my previous adventures in blogging, I signed up for an Amazon associates account, which entitled me to gain a small share of proceeds from any Amazon product purchased off a link from my website. I just needed to affix a little code to the link, and I would get a few cents on the dollar for every purchase. It never made me much money, but it existed.

Until yesterday. “Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants,” the note read. “It specifically imposes the collection of taxes from consumers on sales by online retailers – including but not limited to those referred by California-based marketing affiliates like you – even if those retailers have no physical presence in the state.”

So what is this about? As part of the budget passed this week, California will begin compelling online retailers to collect sales tax from purchases by California residents. Major online retailers like Amazon simply don’t want to collect the tax and pass it on to the state, nor do they want to charge their customers sales tax. So they’re taking it out on their affiliates. Arkansas, Colorado, Connecticut, Illinois, North Carolina, Rhode Island and Texas have already passed bills requiring online sales taxes, and Amazon promptly shut down affiliate programs in those states.

How does this have anything to do with the affiliates? It has to do with a work-around to circumvent federal law. Patrick May at the San Jose Mercury News explains:

Under federal law, states can tax sales only if the seller has a physical presence in the state. The California bill seeks to get past that issue by letting the state tax board collect from any retailer with a so-called business “nexus” or connection with an affiliate inside California. Supporters say it would make the tax code more fair, forcing Internet retailers to collect taxes just as brick-and-mortar stores already do.

So Amazon’s reaction is to cancel any business dealings with any affiliate inside the state. In their mind, this stops them from having to deal with online sales taxes. You can expect other major online retailers, like Overstock.com, to follow suit. In other states, like Illinois, online retailers have filed a lawsuit alleging that the state cannot impose sales taxes on a business outside the state in this fashion, as it oversteps their authority to regulate interstate commerce. In New York, Amazon is actually collecting the sales tax, but the retailers won an appeal back in November to pursue a court case against the law, after a state Supreme Court judge previously allowed the law to stand.

This won’t mean much to me, but many of the other 25,000 affiliates in California collect the revenues from the affiliate program as a healthy chunk of their income. They are all out of luck today.

Too many states have passed this kind of law, only to see the retailers abandon their affiliates, for there to be no recourse for action. Dick Durbin has introduced legislation to force online retailers to collect state and local sales taxes, which would clarify the law.