Jewelry e-retailer Blue Nile Inc. today joined Amazon.com Inc. in severing its referrals from Rhode Island online affiliates because of legislation that would require the collection of sales tax. The two retailers recently took similar action in North Carolina and Amazon today cut off its affiliates in Hawaii.
“This is a result of the tax collection legislation passed by the Rhode Island state legislature, and expected to become law,” Blue Nile said in a letter sent today to its Rhode Island affiliates. “Blue Nile regrets the need to take this action. As the U.S. Supreme Court’s 1992 Quill decision makes clear, the proposed bill is unconstitutional as it requires sellers with no physical presence in the state to collect sales tax on sales to buyers in that state.”
Blue Nile made a similar announcement to its online affiliates in North Carolina on Saturday, June 27.
Amazon also sent similar messages to its Rhode Island affiliates yesterday, to its North Carolina affiliates on Friday and to its Hawaii affiliates today. “This is a direct result of the unconstitutional tax collection scheme passed by the Rhode Island General Assembly with a veto-proof majority,” Amazon said in the message yesterday. “As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 29. We were forced to take this unfortunate action in anticipation of actual enactment because of uncertainties surrounding the legislation’s effective date. The governor could sign the bill—or have his veto overridden—any day now.”
Both Blue Nile and Amazon said they would pay their affiliates for all referral fees earned until the recent terminations. Amazon notes that its referral fees can run as high as 15% of the value of a sale transaction, and that it will make final payments to affiliates by Sept. 1.
Both retailers say they will re-open their affiliate programs in the states if they eventually do away with the tax collection schemes. “We remain hopeful that this unconstitutional legislation will ultimately be rejected, at which point we would be happy to resume working together,” Blue Nile said in its letters to affiliates in both states.
Rhode Island, North Carolina and Hawaii are following the lead of New York State, which modified its state sales tax law last year to require online retailers with New York-based web site affiliates to collect and remit tax on all online sales to New York customers. Amazon, No. 1 in the Internet Retailer Top 500 Guide, lost a court challenge to the New York law, and it is collecting tax from customers within the state as it appeals that court ruling, a spokeswoman says.
Amazon started getting customers through online affiliates in 1996, but doesn’t reveal its number of affiliates, the spokeswoman says. The web-only retailer collects sales tax from customers in several states where it maintains physical facilities, including Washington, North Dakota, Kentucky and Kansas.
The U.S. Supreme Court has ruled that online and catalog retailers can only be required to collect sales tax from customers in states where the retailers maintain a physical presence, such as distribution centers or sales offices. Consumers are supposed to pay their own sales tax on goods purchased online and through call centers if sales tax is not charged by the retailer, but consumers rarely do, tax experts say. States, meanwhile, are looking for ways to shore up revenue shortfalls resulting from the economic downturn.
Other states considering similar legislation include California and Connecticut.
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