Amazon dumps CA affiliates
Retailers strike back — will state’s new online sales tax backfire?
Reacting swiftly to an online sales tax signed into law Wednesday by Gov. Jerry Brown, Amazon.com and Overstock.com announced they are severing their relationships with California affiliates to avoid having to collect the tax.Under federal law, states can require online retailers to collect sales taxes only if the seller has a physical presence in the state. California law requires residents to pay taxes on all online purchases, but many consumers don’t, giving Amazon and other online retailers that don’t collect the sales taxes an advantage over big-box retailers and other brick-and-mortar stores.The new law allows the state’s tax board to collect sales tax from online retailers that have relationships with an affiliate — typically in-state blogs that drive sales to the retailers in exchange for a small cut of the proceeds.Supporters say the legislation is long overdue and levels the playing field.“In California, out-of-state online retailers basically had a 10 percent price advantage every day of the year,” said Bill Dombrowski, a spokesman for the California Retailers Association, which lobbied for the legislation. “This is nothing more than some companies trying to get a competitive advantage through a tax loophole, and now we have closed it.”It remains far from clear, however, that the law will succeed in forcing Amazon and other online retailers to collect the sales taxes. When other states — including Illinois, Arkansas and Connecticut — passed similar online sales tax legislation this year, Amazon severed its ties with affiliates in those states as well. Amazon is challenging a similar New York law in court, so the issue of how far states can go in their efforts to collect online sales taxes may ultimately be headed for the U.S. Supreme Court. Even cutting ties with affiliates, however, might not be enough for retailers such as Amazon. The law has a second provision that would force retailers with a subsidiary based in California to collect the tax. Amazon has several, including Lab126 in Cupertino, which develops Kindle book readers for the company.Diana Tucker, owner of West Valley Music in Mountain View, said her shop struggles to compete against Amazon and other online retailers that don’t collect sales tax.“We still have enough people who think a music store is pretty cool to be around, but we have lost seven or eight music stores in the Bay Area in the last five years,” Tucker said. “People think they are getting a deal by ordering their stuff online and out of state, but, in fact, they are hurting the schools, the police.”The State Board of Equalization estimates there are 25,000 affiliates in California, 10,000 of whom make money by being affiliates with Amazon.“We oppose this bill because it is unconstitutional and counterproductive,” Amazon said in an email to its affiliates. “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.”Utah-based Overstock.com, which did $1 billion in online business last year, sent a similar note to its California affiliates Wednesday.“We think this law is unconstitutional,” said Mark Griffin, Overstock’s general counsel. “We sent a final note to our California affiliates today. It’s a business decision that we had to make.”Ken Rockwell, a La Jolla resident who writes a popular blog about cameras and photography, earns most of his income by being an affiliate. His blog links to retailers like Amazon and B&H Photo-Video, which has a large retail store in New York as well as a robust online sales operation. He’s still trying to understand the impact of the law, but assumes that he’ll no longer earn money from Amazon.“This is not good for anybody, and it affects the companies who pay me,” said Rockwell, 49, who has blogged about photography full time for 10 years. “It seems like the government is messing with something that it really doesn’t understand. A lot of people make a few dollars here and there by being affiliates, and they really need the money.”Staff writer Troy Wolverton and the Los Angeles Times contributed to this report. Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.
New online sales tax
Consumers are required to pay taxes on purchases from online or mail-order retailers located out of state. Few do, though, and thanks to a U.S. Supreme Court ruling, states such as California have few means to force out-of-state retailers to collect those taxes. As part of the new budget deal, California is trying to change that.
Who’s affected: Consumers who shop online and large out-of-state retailers.What’s new: Out-of-state retailers who sell at least $500,000 worth of products into the state are now required to collect sales taxes if at least $10,000 of those sales are referred to them via a Web link by California residents or businesses. Amazon.com, for instance, would be required to collect sales taxes on purchases made by California residents, thanks to its affiliates in the state that direct visitors from their Web sites to Amazon.What’s the impact: The state says the measure will raise $200 million in new revenue. But Amazon, the largest online retailer, as well as Overstock.com, say they will no longer deal with California-based affiliates. The Supreme Court, which has already set limits on when out-of-state retailers are required to collect taxes, could take a dim view of the law. Amazon is challenging a similar New York law in court.
Source: Mercury News research
THE TAX
Who pays: Consumers who shop online and large out-of-state retailers will be affected.How it works: Out-of-state retailers that sell $500,000 worth of products into the state must collect sales taxes if $10,000 of those sales are referred to them via a Web link by a California resident or business.What it means: Amazon and Overstock may stop dealing with California affiliates.

			Originally Published: June 29, 2011 at 2:20 PM PST