March 9, 2010, 12:00 AM

Amazon cuts off Colorado affiliates in reaction to a new sales tax law

In protest of a new law targeting out-of-state e-retailers, Amazon.com has told its online affiliates in Colorado that it is no longer paying them for customer referrals—a step Colorado Gov. Bill Ritter has called “disappointing and unjustified.”

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In protest of a new law targeting out-of-state e-retailers, Amazon.com Inc. has told its online affiliates in Colorado that it is no longer paying them for customer referrals-a step Colorado Gov. Bill Ritter has called “disappointing and unjustified.”

The new law, enacted March 1, is not related to affiliate programs but requires out-of-state retailers that don’t collect sales tax to notify Colorado customers of their responsibility to pay their own tax; it also requires the retailers to file annual reports listing the names of Colorado customers and the dollar value and product categories associated with their online orders.

The retailer, in an e-mail to the Colorado members of its Amazon Associates Program forwarded to Internet Retailer, contends that, while the new law doesn’t require online retailers to collect sales tax, it is “clearly intended to increase the compliance burden to a point where online retailers will be induced to ‘voluntarily’ collect Colorado sales tax-a course we won’t take.”

 

Amazon continues in the e-mail to affiliates: “Regrettably, as a result of the new law, we have decided to stop advertising through associates based in Colorado.”

When asked by Internet Retailer why Amazon cut ties with Colorado affiliates even though the law doesn`t affect affiliate relationships, a spokeswoman reiterated in an e-mail reply points made in the statement sent to affiliates, that the "regulations are burdensome, and no other state has similar rules" and that the law was designed to eventualy get retailers to voluntarily collect sales tax.

Gov. Ritter, in a statement issued after Amazon severed its affiliate ties, contends that his office worked closely with Amazon’s affiliates in Colorado to modify an earlier version of the legislation that included language that required out-of-state online retailers to collect sales tax if they did business through Colorado affiliates. “My office worked closely with Amazon’s affiliates and associates to modify House Bill 1193 to specifically protect small businesses, avoid job losses and provide a fair, level playing field for online retailers and Main Street, brick-and-mortar retail shops alike,” Ritter said.

He added, “Amazon has taken a disappointing-and completely unjustified-step of ending its relationship with associates. While Amazon is blaming a new state law for its action, the fact is that Amazon is simply trying to avoid compliance with Colorado law and is unfairly punishing Colorado businesses in the process.”

In its statement to affiliates, however, Amazon contends the Colorado law is not constitutional as defined by the U.S. Supreme Court, which has ruled that retailers can only be required to collect sales tax in states in which they have a physical presence, such as stores or warehouses.

“There is a right way for Colorado to pursue its revenue goals, but this new law is a wrong way,” Amazon says in the statement to affiliates. “As we repeatedly communicated to Colorado legislators, including those who sponsored and supported the new law, we are not opposed to collecting sales tax within a constitutionally-permissible system applied even-handedly. The U.S. Supreme Court has defined what would be constitutional, and if Colorado would repeal the current law or follow the constitutional approach to collection, we would welcome the opportunity to reinstate Colorado-based Associates.”

Rebecca Madigan, founder and executive director of the Performance Marketing Association, a national trade group representing affiliates that refer customers to Amazon and other online retailers, says there are about 4,200 affiliates in Colorado, and she estimates about 70% or more of them work with Amazon.

Madigan says her organization worked with Colorado state officials to drop the affiliate provision, and has since spread the word to retailers that the new law no longer relates specifically to affiliates. Although a few other merchants initially suspended their affiliate relationships after the new law was passed, all but Amazon have since reinstated those relationships, Madigan says.

Amazon says it will continue to sell directly to Colorado residents, though its e-mail to associates did not mention the new law’s provisions related to filing purchase data with the state or informing customers of their responsibility to pay their own sales tax. “We still are evaluating the legislation and our options,” the spokeswoman said, noting that several provisions of the law don’t immediately take effect.

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