Amazon stands firm on sales tax battle, cuts off Connecticut

By on June 13, 2011, 2:00 PM

Amazon.com has cut its ties with its online sales affiliates in Connecticut over a new state law there that would force the ecommerce giant to collect sales taxes on their behalf. The company has made it clear that it will stand its ground against efforts in states to pass the aforementioned law, and Connecticut is just the latest example of that. So far Amazon has cut ties with affiliates in Texas, Colorado, Illinois, Hawaii, North Carolina and Rhode Island.

Currently at least ten other states are at risk of being cut off as well. The measure does not affect customers' ability to purchase items from Amazon, but it means owners of websites affiliated to the giant retailer and other marketers in the state will no longer receive a portion of the sales for funneling customers to Amazon.

The issue revolves around several states' intentions to start collecting sales tax from online transactions. Previously, Amazon has been protected by a U.S. Supreme Court ruling from 1992, which says companies cannot be required to collect sales tax in states where they do not have physical presence. Amazon collects sales tax in Kansas, Kentucky, New York, North Dakota and Washington, the only markets where it has stores or offices, but states want to get around this by expanding the definition of physical presence to include affiliate partners earning commissions.

Amazon CEO Jeff Bezos called the measure unconstitutional and counterproductive because it interferes with interstate commerce, and says the issue highlights the need to simplify the existing sales tax system through federal legislation. Other retailers including Overstock.com have also canceled ad contracts with affiliates rather than collect the tax.

It remains to be seen who will blink first -- cutting ties with affiliate partners means those business won't get checks from Amazon and the drop in revenue will translate into less taxes for the incumbent state. On the other hand, it also means less business for Amazon. A state-by-state look at how Amazon is handling the sales tax issue is available here.

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