Amazon drops California associates to avoid sales tax

@CNNMoneyTech June 29, 2011: 7:29 PM ET

NEW YORK (CNNMoney) -- Amazon said Thursday it is terminating its relationship with thousands of California associates because of a new law that would require the online mega-retailer to collect sales taxes if it has affiliates in the state.

Governor Jerry Brown signed the measure into law on Thursday as part of the state's plan to reduce its budget gap. It is expected to add $200 million to the Golden State's coffers.

"We oppose this bill because it is unconstitutional and counterproductive," Amazon wrote in its letter to associates. "Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue."

Brown and lawmakers responded by saying the measure levels the playing field for California's brick-and-mortar retailers, which are required to collect sales taxes.

"It's odd that a company would voluntarily dilute its business in the most populous state in the country simply because it's being asked to collect what is lawfully owed," said Mark Hedlund, a spokesman for Senate President Pro Tem Darrell Steinberg.

Other states that have passed the so-called "Amazon tax" in recent years include Connecticut, Illinois, New York, North Carolina, Arkansas and Rhode Island. The retailer has dropped the associates program in all these states, except New York, where it has a brought a lawsuit against the state.

Amazon's (AMZN, Fortune 500) associates program provides a commission to website or blog operators who refer shoppers to the retailer's site. The operators are paid if the shopper makes a purchase.

The retailer, which has had associates in California for more than a decade, works with 10,000 affiliates in the Golden State. They range from mom-and-pop shops who participate to supplement their income to larger companies that survive on marketing referrals, said Rebecca Madigan, executive director, Performance Marketing Association, a trade group.

The law could force some affiliates to close their doors, said Steve Gill, an accounting professor at San Diego State University.

It could be "devastating for certain businesses in California," he said. To top of page

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