May 24, 2011, 4:23 PM

Overstock cuts off Connecticut affiliates

Overstock decides to end the affiliate program because of a sale tax law.

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Following Connecticut’s adoption this month of a so-called “Amazon tax” law, Overstock.com Inc. announced today it will no longer advertise on affiliate sites in the state. Instead, it will shift money from its affiliate marketing program to in-state consumers taking part in the web-only retailer’s loyalty program, called Club O.

Overstock has made similar moves in such states as New York, North Carolina, Rhode Island and Illinois after lawmakers enacted laws requiring sales tax collection by online retailers that do business with affiliates in those states. Affiliates are web site operators that provide links to web merchants and receive commissions on sales that result from clicks on those links.

The Connecticut law, set to take effect July 1, requires retailers that receive more than $2,000 per year in sales from affiliate web sites based in the state to collect and remit sales taxes.

Overstock CEO Patrick Bayne calls the Connecticut law unconstitutional. “We have severed relationships with all of our affiliates in Connecticut, and have taken the money we would normally pay those affiliates, and are using it to reward our best customers in those states,” he says.

Overstock will award free Club O memberships preloaded with $10 to Connecticut customers who have spent more than $300 with the retailer over the past year.  The memberships, which normally cost $19.95 per year, give customers 5% off every purchase, free shipping on items over $25 and access to exclusive sale events. Consumers who are already Club O members will have their memberships extended for one year and $10 added to their rewards accounts, the retailer says.

Amazon.com Inc. is No. 1 in the Internet Retailer Top 500 Guide. Overstock is No. 27.

George Isaacson, a partner at Brann & Isaacson, and Steve DelBianco, executive director at NetChoice, will speak at the Internet Retailer Conference & Exhibition 2011 about online taxes in a session entitled "How to be prepared when the sales tax officers call."

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