Amazon last week ended its relationship with Colorado-based affiliates in retaliation of a new state law aimed at getting out-of-state, online retailers to collect sales tax.
Amazon previously cut off affiliates in Rhode Island and North Carolina when the states passed online sales tax laws. These state laws argued an online retailer's affiliates constitute a presence within the state and therefore they had to pay sales tax. In New York, Amazon is suing the state over its law but in the meantime is collecting the sales tax.
But the final version of the Colorado legislation signed last month removes the affiliate portion by basing its argument on "use tax" instead of "sales tax." Most states have required for many years that tax be paid on merchandise purchased out of state and either delivered or bought home, although it is challenging to collect.
Colorado's plan forces online retailers like Amazon to turn over a yearly list of purchases made by Colorado residents. Amazon also will have to send Colorado customers a yearly tax invoice. Sponsors hope the process will be so cumbersome retailers simply will collect sales taxes instead.
In its e-mail to affiliates, Amazon called the regulations "burdensome," and noted that no other state has similar rules. It added that "they are clearly intended to increase the compliance burden to a point where online retailers will be induced to 'voluntarily' collect Colorado sales tax -- a course we won't take."
The law has quickly turned into a political battle over the opportunity to recoup billions through e-commerce taxes versus the impact on an estimated 5,000 jobs in Colorado from Amazon's counter-move. The affiliates, many of them small, home-based operations, earn money by using their websites and blogs to link customers to online retailers. Other online retailers such as overstock.com are also protesting the move while local Colorado retailers and many national retailers that pay sales taxes have long maintained that online retailers have an unfair advantage. Several other states are also considering internet tax proposals to shore up depleted budgets.
Some Democratic lawmakers, including Gov. Bill Ritter, accused Amazon of "corporate bullying" for cutting off its affiliates. They argue that Amazon will still be responsible for either collecting the taxes or telling their customers to pay it. Some boycotts of Amazon have been launched.
"They've done nothing here but spit in our face," Senate Majority Leader John Morse said.
But many affiliates, as well as Republican lawmakers, are seeking a repeal of the act.
"It's exactly what we said would happen. They're going to put people out of work. It's a game of chicken with people and their jobs, and they lost," said House Minority Leader Mike May, R-Parker.
Discussion Questions: Do you support e-commerce sites being tax-free or should e-tailers be required to pay the same levies as physical store locations? What do you think of Colorado's "use tax" rather than a sales tax? What do you make of Amazon's response?