retail

Amazon.com cuts R.I. partners over tax

Net retailer says state cannot force it to collect sales tax

AMAZON.COM SAYS STATE LAWMAKERS have approved an “unconstitutional tax collection scheme” by attempting to force the company to collect sales tax.
Posted 6/29/09

PROVIDENCE – Amazon.com Inc. cut ties today with its business affiliates in Rhode Island to protest a provision in the draft state budget that would force the company to collect sales tax, Providence Business News has confirmed.

Rhode Island is now the second state where affiliates in the program, known as Amazon Associates, have been cut off over the sales tax issue. Earlier this month the Seattle-based online retailer also closed its affiliates’ accounts in North Carolina.

Amazon Associates, which has been around for 13 years, allows Web site publishers to collect referral fees of up to 15 percent if customers use product-page links on their sites to make purchases on Amazon.com or its sister site Endless.com.

The General Assembly’s proposal, which was passed by both houses last week, would require Amazon to collect taxes on purchases made through the site of a Rhode Island-based author or company. The full budget, including the sales tax provision, is on the desk of Gov. Donald L. Carcieri, who has not said what action he will take on it.

All Rhode Island-based Amazon Associates accounts have been closed effective today, according to an e-mail the company sent them, because it was unclear when the measure would take effect if Carcieri were to sign the budget bill into law. The company had sent another message warning of the possibility last week.

Patty Smith, a spokeswoman for Amazon, declined to say how many affiliates were affected, saying the company does not disclose figures related to the program. Any outstanding referral fees will be paid by Sept. 1, she said.

The fight between Amazon and the state stems from a 1967 U.S. Supreme Court decision, reaffirmed in 1992, that said businesses without a physical presence in a state are not required to collect that state’s sales tax. The court ruled that forcing firms to navigate the nation’s many state and local tax regimes would pose an unconstitutional barrier to interstate commerce.

As e-commerce has grown in the 17 years since, state lawmakers have complained about the growing amount of sales tax revenue they were foregoing from online purchases. “I am very concerned about the lack of taxes collected on all remote sales,” Rep. Steven M. Costantino, chair of the House Finance Committee, told Providence Business News earlier this year, referring to purchases made outside of brick-and-mortar stores.

With tax revenue in free fall nationwide, lawmakers in a number of states lately have moved to force Amazon to collect sales tax. They argue that if Amazon has affiliates in a state, it has a physical presence there, and therefore is required to collect sales tax under the Supreme Court precedent.

Amazon dismisses the idea as an “unconstitutional tax collection scheme.” The company says it is not opposed to collecting sales tax, but wants uniform standards across all states first.

“We vehemently disagree with the way the states are going about trying to collect additional revenue,” Smith said. “We feel that the way that the [Rhode Island] legislation is drafted is, essentially, unconstitutional.”

She added: “Since we have no physical presence in the state of Rhode Island, for the legislature to require us to remit sales tax on behalf of customers in that state – we feel we had little choice but to end our affiliation with associates.” Smith said the company “would happily reinstate the Associates program” in Rhode Island if lawmakers repeal the sales-tax mandate.

New York has been in the vanguard of state efforts to collect sales tax from Amazon and other online retailers. A suit Amazon has filed against the state over the mandate is still pending. In the meantime, Amazon has been collecting sales tax from New York residents since the law went into effect last June, although the company continues to argue the measure is unconstitutional, Smith said.

Amazon has sent letters to lawmakers in three other states – Connecticut, California and Hawaii – warning them against passing similar bills, Smith said. Three additional states – Maryland, Minnesota and Tennessee – considered similar legislation but opted not to pursue the matter.

Caught in the middle are the affiliates, who stand to lose a key source of income from their Web sites. Lydia Walshin, a North Scituate resident who writes the food blog The Perfect Pantry, said in an e-mail that she was “dismayed” to receive Amazon’s e-mail this morning notifying her that the company had closed her affiliate account.

“I’ve been a happy Amazon.com affiliate for three years, and belong to other affiliate programs as well,” Walshin said. “If all of the programs pull out of Rhode Island, doesn’t that defeat the purpose of including this tax in the budget?”

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