April 5, 2011, 2:39 PM

Arkansas governor signs “Amazon Tax” law

Beginning this summer, e-retailers with in-state affiliates must collect sales tax.

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Arkansas is the fifth state to enact a state law that requires Internet retailers to collect sales tax if they do business with in-state affiliate web sites.

Gov. Mike Beebe, a Democrat, signed Senate Bill 738 into law Friday. The law imposes sales tax-collection responsibilities on Internet retailers that are referred visitors by affiliate web sites based in Arkansas and generate more than $10,000 a year in sales from Arkansas residents.

“We have a lot of local businesses in Arkansas, both small and large companies, that collect sales tax and we’re trying to level the playing field,” a spokesman for Gov. Beebe says. Arkansas has been working with the multi-state Streamlined Sales Tax Project toward a federal law that would require all retailers to collect sales tax, but that effort is not expected to succeed any time soon and Beebe sees the Amazon tax law as a way to bring about more immediate way of increasing collection of sales tax revenue, the spokesman adds.

The Arkansas law becomes effective 90 days after the state General Assembly’s current session adjourns. The session appears likely to adjourn later this month, putting the law’s effective date in late July, a spokesman for the governor says.

The four other states with similar laws are New York, North Carolina, Rhode Island and Illinois. Such retailers as Amazon.com, No. 1 in the Internet Retailer Top 500 Guide, and Overstock.com, No. 28, have cut ties with affiliates in states with such laws, and have threatened to do so in states that are considering similar laws. 

By the end of today, Overstock will have sent notices to all of its Arkansas affiliates that it will no longer do business with them as of May 1, unless they re-locate to another state without a similar affiliate tax law, president Jonathan Johnson says. To help its customers overcome the loss of deals they typically find on affiliate sites, such as coupons good at Overstock.com, the retailer is contacting its Arkansas-based customers this week with the same offer it recently made to customers in Illinois: membership in its Club O loyalty program with a waived $20 registration fee, plus a coupon worth $10 toward any purchase on Overstock.

Amazon did respond immediately to a request for comment.

Affiliate sales tax laws, often referred to as “Amazon tax” laws because the No. 1 e-retailer is a primary target, are among the latest efforts by states to force online retailers to collect and remit sales tax regardless of whether they directly own and operate physical facilities in a particular state. Under federal law, retailers can’t be required to collect sales tax in states where they operate no physical facilities such as stores or distribution centers.

State officials expect the affiliate laws to generate sales tax revenue that otherwise goes uncollected. Though consumers are supposed to voluntarily pay taxes on their online purchases, few do. However, the revenue the states hope to gain may not materialize if many online retailers cut ties with affiliates in states with such law, or if affiliates move out of those states, as some threaten to do.

There are 10 other states considering “Amazon tax” legislative bills designed to force sales tax collection by Internet retailers, notes Daniel Schibley, a state tax analyst at CCH Inc., a unit of Wolters Kluwer that publishes tax and business information. Those states are Arizona, California, Connecticut, Hawaii, Massachusetts, Missouri, Minnesota, Tennessee, Texas and Vermont.

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