Online retailers cut off more affiliates over sales tax legislation

07/03/2009

Recently passed legislation which forces online retailers to collect sales tax is already having an effect on the way they do business. Both Amazon.com Inc. and a successful online jewelry retailer, Blue Nile Inc., have cut off their affiliate marketing referral program from those living in the state of Rhode Island. This is not the first time they have felt the need to do this as states are increasingly taking these measures. Both companies have already had to cut off their programs to North Carolina; Amazon has done the same to those participating in the program in Hawaii.

The Rhode Island state legislature has just passed the legislation which will require the collection of sales tax, and it is not expected to be overturned. Blue Nile broke the news to its affiliate marketing associates in a letter, stating that they truly regret having to make this move, but find it necessary. They continue in the letter by claiming the legislation is in fact unconstitutional due to the United States Supreme Court’s 1992 Quill decision which states that those who sell with no physical presence in a particular state, are not required to collect sales taxes from those who live in those states. Blue Nile had already made this statement to their North Carolina affiliates.

So far, Amazon.com Inc. handled the situation in a very similar fashion, sending out announcements to affiliate marketing partners in Rhode Island on June 29th, Hawaii on June 30th, and North Carolina on June 26th. In these announcements, Amazon states that the tax collection legislation recently passed by the Rhode Island State Assembly was unconstitutional and that as a result the company would not be able to continue paying its referral fees to customers in that state. Additionally, they claimed to have no choice but to cut off payments immediately, due to the uncertainly of when the bill would go into effect.

Both companies have announced that they will be paying their affiliate marketing associates for all the fees earned prior to being cut off from the program, with all final payments being made on Sept 1. They remain hopeful that these recent rulings will eventually be overturned, at such time they will resume the program in these states.

The official Amazon.com affiliate marketing program was established in 1996, and the number of affiliates that they currently have is not disclosed. Currently the company only collects sales tax in states where it has facilities located, in accordance with state tax laws.

It has been ruled by the Supreme Court that catalog and online retailers only have to collect sales tax in states where companies have a physical presence, like sales offices or distribution centers. In cases where consumers purchase goods in states where no facilities are held, it is their duty to pay the sales tax on their own, however this rarely occurs. Some believe this recent legislation is an attempt by states to make up for losses due to the poor economy.

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