September 1, 2011, 12:00 AM

California Scheming

(Page 2 of 2)

"It's taken years to build these affiliate relationships," Cotlar says. He adds that Blinds, which connects with affiliates through Rakuten Inc.'s LinkShare affiliate network, spends a lot of time and money researching the best affiliates by their types of online content and visitors, and testing the sales resulting from customers who arrive on from affiliate sites.

Blinds gets about 5% of its business through affiliates, and by cutting a quarter of them it has forfeited about 1% of its sales. But Cotlar figures the loss of business from charging sales tax would be worse. "I'd rather take a risk on losing that 1% than risk alienating a whole bunch of customers with sales tax, plus having to absorb the cost to us of collecting tax," he says.

Looking to the feds

Many retailers say that states, rather than making retailers abide by a slew of state laws, should wait for an easier-to-follow national program as proposed by the pending federal Main Street Fairness bill. That legislation would authorize states that have simplified tax collection rules procedures as part of the Streamlined Sales Tax Project to mandate sales tax collection by all retailers whether or not they had nexus in a state.

But that federal legislation, submitted in July by Sen. Dick Durbin (D-Ill.), the majority whip—or second-leading Democrat—in the Democrat-controlled Senate, isn't likely to pass through Congress any time soon, says Daniel Schibley, a state tax analyst at CCH Inc., a unit of Wolters Kluwer. "The Main Street Fairness Act is unlikely to gain much traction in the current Congress, especially since it was introduced without any Republican co-sponsors," he says.

While watching how things develop, both and the sporting goods retailer say they hope they don't have to terminate many more affiliate relationships. Even though some affiliates may forward customers that Blinds would receive anyway, Cotlar says, he still figures the exposure the retailer gets through affiliates gives it a boost. "We can't be a leading Internet retailer without being in an affiliate program," he says.

Time will tell how much state or federal legislation will tax that strategy.

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