New Sales Tax Rule Leads Amazon.com to Drop California Online Affiliates

Amazon.com (News - Alert) will drop online affiliates in California because the state enacted a new law requiring online retailers to collect sales taxes, according to media reports.

California Gov. Jerry Brown signed the law Wednesday – which is part of a state budget package.

The new law mandates that out-of-state electronic retailers collect sales taxes on purchases made by California customers.

The new law comes as the state made a 1 percent reduction in the state sales tax.

In an email to its affiliates, Amazon called the law both "unconstitutional" and "counterproductive," according to The Associated Press.

Amazon’s statement reads that, "We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors."

The new law is projected to raise $317 million a year in new state and local tax revenues, according to The Los Angeles Times.

Amazon has stopped working with members of its Amazon Associates Program not only in California but in Arkansas, Connecticut and Illinois.

Each of the three other states enacted similar laws.

Amazon warns it will stop working with affiliates in Texas, if a similar law is enacted there, BusinessInsider said.

In addition, Overstock.com Inc. stopped its affiliate programs in several states, too, because of the new laws. It issued a statement in response to the California law, which said in part, “We believe the law is unconstitutional and necessitated this decision. There will be no other changes to the way we do business."

Amazon had about 10,000 affiliates in California, according to a report from BusinessInsider.

"This legislation is counterproductive and will not cause our retail business to collect sales tax for the state," Paul Misener, Amazon's vice president of global public policy, told The Times about the California law.

Amazon declined to say if it would file a lawsuit against California in response to the new tax law, according to The Times.

The company filed a suit when New York enacted a similar law in 2008. The New York complaint is now being appealed, The Times said.

Retailers are expected to collect the new sales taxes immediately, The Times adds.

It was reported on TMCnet that brick-and-mortar retail stores, such as Wal-Mart and Target (News - Alert), may view the tax as a method “to weaken online companies like Amazon.com.”