March 31, 2010, 12:00 AM

Amazon says goodbye to Colorado affiliates after the state passes a new sales tax law

The new Colorado law requires online retailers who don’t collect sales tax to notify customers of their own responsibility to hand it over to the state. Amazon says the law is unconstitutional and intended to induce web retailers to voluntarily collect sales tax. Colorado Gov. Bill Ritter says Amazon’s response is “disappointing and unjustified.” Inc. is drawing a line in the sand in Colorado: It has told its online affiliates there that because of a new law targeting out-of-state e-retailers it will no longer pay the affiliates for customer referrals. It’s the latest example of online retailers fighting back against cash-strapped states trying to boost revenues by imposing sales taxes on online purchases.

A U.S. Supreme Court ruling exempts online retailers from paying sales tax except when they have a physical facility in a state, and several states have tried to get around that by passing laws taxing retailers if they work with affiliates in those states.

However, the Colorado law enacted March 1 does not mention affiliates. Instead it requires out-of-state retailers that don’t collect sales tax to notify Colorado customers of their responsibility to pay their own tax. It further 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.

Amazon responded to the law by sending a letter to Colorado affiliates stating 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.”

Colorado Gov. Bill Ritter called Amazon’s move “disappointing and unjustified.” Ritter contends his office worked closely with Amazon’s affiliates in Colorado to modify an earlier version of the legislation that included language that would have 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, bricks-and-mortar retail shops alike,” Ritter said.

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.

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