California just became the latest U.S. state to sign the so-called "Amazon tax" that will enable it to start collecting sales tax from online transactions. The move will likely trigger a response from Amazon, which has made it clear that it will stand its ground against what it considers to be an "unconstitutional and counterproductive" measure that interferes with interstate commerce.
In fact, the giant online retailer already warned its estimated 10,000 California affiliates on Wednesday afternoon that it would have to cut ties with them should Governor Jerry Brown sign the online sales tax bill passed by the Legislature. Brown signed the bill later that afternoon, and we expect Amazon to follow through with its promise.
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.
So far Amazon has cut ties with affiliates in Texas, Colorado, Illinois, Hawaii, North Carolina, Rhode Island and Connecticut. 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 – which will translate into less revenue for businesses and less taxes for the state.
Supporters of the legislation signed by Brown say Amazon's sales model denies state's treasury and local governments several million dollars a year in tax revenue. Meanwhile, Amazon has claimed the measure is being pushed by big-box retailers seeking to harm its competitors, and that it has turned counterproductive in states were it has been passed.
Online retailer Overstock.com also said that it would end its relationship with associates because of the new law.