March 3, 2011, 3:46 PM

Amazon’s problem, Wal-Mart’s opportunity

Wal-Mart and Sears hope to snatch up Amazon's California-based affiliates.

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The latest move in the battle over online sales taxes is pitting mega-retail chain Wal-Mart Stores Inc. and other multichannel retailers against web-only rivals Amazon.com and Overstock.com for the loyalty, and revenue-generating potential, of California-based affiliates.

Wal-Mart, the world’s largest retailer, has issued a public invitation to Amazon and Overstock affiliates to work with the Walmart.com e-commerce site. Sears Holdings Corp. issued its own letter to Amazon affiliates today. Bookseller Barnes & Noble extended a similar invitation to Amazon affiliates last month. Online retailers pay affiliates, typically operators of informational web sites, a cut of the sales that result from consumers clicking on a retailer’s ads on their sites.

Amazon and other online-only retailers are fighting efforts by California and other states to require e-retailers to collect sales tax on products sold to consumers in those states. California lawmakers argue that Amazon has a physical presence—or nexus in legal jargon­­—in the state because thousands of Amazon affiliates operate there. The maneuver prompted Amazon this week to send a letter to California tax officials warning them that if the pending legislation becomes law, it would terminate its relationships with its more than 10,000 California-based affiliates. Amazon already has cut ties with affiliates in North Carolina, Rhode Island and Colorado for the same reasons.

Wal-Mart “is committed to supporting the affiliate programs which help to drive Walmart.com's online business,” the company says, noting Amazon’s and Overstock’s opposition to the legislation. Wal-Mart says it has about 200 affiliates in California. Walmart.com is No. 6 on Internet Retailer’s Top 500 Guide. Amazon is No. 1 and Overstock No. 28.

Sears' invitation, from Imran Jooma, president of Sears eCommerce, says Amazon is turning its back on its affiliates and encourages them to consider joining Sears' network of more than 6,500 affilates nationwide. "As states continue to grapple with increasing budget deficits and businesses, large and small, slowly make their way out of one of the worst economic declines in recent history -- Amazon turns its back on its customers, affiliate partners and the community to maintain an unfair competitive advantage that ultimately puts Amazon's customers at risk," Jooma writes.

Amazon.com did not immediately respond to requests for comment.

Overstock.com vice president and general counsel Mark Griffin says if California passes the legislation, Overstock will cut ties with affiliates in the state and that he’d expect affiliates to try to make up the potential loss of income by working with other retailers.

“Affiliates will try to fill the gap when we go,” he says. “If the proposition is to collect taxes in the state of California because you have an affiliate there, the simple answer is no, we don’t.” Griffin says Overstock will find alternatives to its affiliate marketing program, though he offered no specifics. Griffin could not say how many affiliates Overstock has in California.

Wal-Mart and Sears are required to collect sales tax on products sold on Walmart.com and Sears.com because they have physical stores in all states. Raul Vazquez, Wal-Mart’s executive vice president of global e-commerce, says the retailer supports the California legislation. “We are committed to the communities where our associates and our customers reside and raise their families,” he says. “This is why we strongly support a change in the law that will help communities and level the playing field for everyone.”

Retail chains typically support laws that would require online retailers to collect sales tax, as does the National Retail Federation, the largest trade association of U.S. retailers.

Barnes & Noble (No. 42), another farflung retail chain that also collects sales tax on online purchases, last month issued an open letter to Amazon.com affiliates inviting them to join the multichannel retailer’s affiliate network. The letter read, in part: “Barnes & Noble wants Amazon.com affiliates who have been terminated to know that you are welcome to join the Barnes & Noble affiliate family. If Amazon doesn’t want you, we do!  And, we will take care of collecting and remitting all sales taxes due on BN.com sales to its customers so you and our customers don’t have to worry about being hassled or prosecuted by state tax auditors.”

BarnesandNoble.com offers affiliates a 6% commission on sales that come from affiliate referrals. Walmart.com offers a commission of 1% to 4% for most product categories. Amazon has several commission structures, including a fixed commission rate of 4% and one that varies from 4% to 8.5% based on sales volume. Overstock pays a commission of 1% to 7%, depending on the product category.

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