Arkansas becomes the fifth state with an affiliate sales tax law.
Arkansas Gov. Mike Beebe, a Democrat, has signed a bill that requires Internet retailers to collect sales tax if they accept referrals from affiliate web sites and do more than $10,000 a year in sales in Arkansas.
SB 738, which is referred to in Arkansas as the both Amazon Tax law as well as the Main Street Fairness law, makes Arkansas the fifth state to enact such legislation, joining New York, North Carolina, Rhode Island and, most recently, Illinois, according to Daniel Schibley, a state and local tax analyst at CCH Inc., a unit of Wolters Kluwer that publishes tax and business information.
Illinois is the only state so far to enact a law this year, though since the beginning of this year similar bills have been introduced in more than 10 states, Schibley adds.
Opponents of the affiliate laws contend they will scare away business, as Amazon and other retailers sever their commission relationships with affiliates and in some cases lead affiliates to move out of state.
One affiliate company that is leaving Illinois, for example, is FatWallet.com, a site that offers coupons and other discount offers that consumers can use to make purchases on retail web sites. Although the Illinois law isn’t due to go into effect until July 1, FatWallet has already received letters from several merchants planning to terminate their commission relationships by April 15, and FatWallet estimates that it could eventually lose between $4 million and $5 million, or up to 40%, of its annual revenue, a spokesman says.
Based in Rockford in the northern part of Illinois, FatWallet is moving its staff of 54 employees and its web site infrastructure three and a half miles north to Beloit, WI, where it has signed a one-year lease and expects to be in full operation by April 11. “We have a state-of-the-art, high-tech facility, and we regret losing the community support we’ve had in Rockford, but we’re not big enough to take this kind of hit,” the spokesman says.
The affiliate sales tax laws are one of the latest efforts by states to collect tax revenue from retailers who are not otherwise required to collect sales tax under federal law that says they can only be required to collect the tax in states where they have a physical presence, such as stores or fulfillment centers. By enacting the affiliate laws, the states are making the case that in-state affiliate web sites constitute a physical presence by serving as a source of customers for online retailers based out of state. A study by the University of Tennessee has estimated that states stand to collect more than $23 billion in revenue by 2012 if all retailers are required to collect sales tax.