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Amazon throws tax hissy-fit, dumps California affiliates

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Amazon and Overstock have severed their agreements with affiliates based in California, in an overnight response to the imposition of a sales tax for online retailers of physical goods. Online retailers are exempt from sales taxes, but dead-broke California introduced such a law on Wednesday night.

"We oppose this bill because it is unconstitutional and counterproductive," the retailer wrote on Wednesday. "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. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action," the retailer continued.

"As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective."

Several hours later Amazon fulfilled the threat.

A Supreme Court ruling in 1992 decreed that state sales taxes can not be levied where the retailer does not have a physical presence. This hasn't stopped states trying it on - and Amazon knows the competitive price advantage it gives them over bricks and mortar rivals.

In 2008, Amazon tore up its affiliate agreements in New York, North Carolina, Hawaii and Rhode Island states after they introduced online sales taxes. Amazon pursued New York state through the courts, arguing the tax was discrimination against the company. A judge eventually ruled it wasn't .

The letter is below in full:

Hello,

Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011. Those California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned before today will be processed and paid in full in accordance with the regular payment schedule.

You are receiving this email because our records indicate that you are a resident of California. If you are not currently a resident of California, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state in the near future please contact us for reinstatement into the Amazon Associates Program.

To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect your ability to purchase from Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com.

We have enjoyed working with you and other California-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to California residents. As mentioned before, we are continuing to work on alternative ways to help California residents monetize their websites and we will be sure to contact you when these become available.

Regards,

The Amazon Associates Team

Pro-business group the Pacific Research Institute says 25,000 jobs will be lost in California as a result of the online sales tax. Sales tax in the Golden State is 8.25 per cent – yet rival Wal-Mart's margins are lower – the most recent profit margin was 3.87 per cent.

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