With ever more states either passing or contemplating passing an Internet affiliate program sales tax, the two edges of that particular sword are being felt from coast-to-coast, as affiliates are being slashed from the lucrative affiliate programs of some of the largest Internet companies.
At the beginning of this year, a New York court upheld New York’s new affililate program sales tax, and in many ways that was the watershed event.
“We are writing from the Amazon Associates Program to notify you that your Associates account has been closed as of June 26, 2009,” wrote Amazon to their North Carolina affiliates last week. “This is a direct result of the unconstitutional tax collection scheme expected to be passed any day now by the North Carolina state legislature (the General Assembly) and signed by the governor. As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 26. We were forced to take this unfortunate action in anticipation of actual enactment because of uncertainties surrounding the legislation’s effective date.”
Overstock gave the news to their California affiliates today, saying that “We regret to inform you that the North Carolina, Rhode Island, California and Hawaii state legislatures have or are about to pass unconstitutional tax nexus and collection laws in an attempt to force Internet retailers to collect and remit sales tax on all sales to residents of these states. These legislative measures purport to establish a state tax nexus on the basis of contracts with local advertising affiliates, even when none exists under U.S. Supreme Court precedent. Overstock.com, Inc. (“Overstock”) has no tax nexus in any state other than Utah. Due to the passage or eminent passage of these unconstitutional laws, Overstock regretfully must discontinue its relationships with all of its advertising affiliates in these states.”
It’s astonishing to realize that the legislators didn’t believe that companies like Amazon and Overstock would really pull out if they passed these taxes. Is it arrogance or simple ignorance that is leading these state legislatures to pass laws that, instead of bringing in new taxes, are depriving their state economic engines of taxable spending fuel?