California Passes Internet Sales Tax Law, Amazon Ends Ad Deal With State Affiliates

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A law recently passed in California forces Internet retailers from the state to charge sales tax, prompting huge online retailer Amazon.com to end affiliate programs with California businesses.

A new California law, Assembly Bill No. 28, requires sellers with a significant presence in the State to charge sales tax. This includes “(a)ny retailer entering into an agreement or agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers of tangible personal property to the retailer, whether by an Internet-based link or an Internet Web site, or otherwise.”

In other words, small businesses that have affiliate advertising programs with online retailers, such as Amazon.com, are now required to charge sales tax.

“Amazon has already emailed its termination of its affiliate advertising program with 25,000 websites,” The Orange County Register reported. The article quoted the termination letter, which read, in part: “We oppose this bill because it is unconstitutional and counterproductive. 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 article also reported that experts said A.B. 28, which took effect immediately upon passage, would “immediately cut small-business website revenue 20 percent to 30 percent.”

Board of Equalization Member George Runner told the paper, “Even as Governor Jerry Brown lifted his pen to sign this legislation, thousands of affiliates across California were losing their jobs. The so-called ‘Amazon tax’ is truly a lose-lose proposition for California. Not only won’t we see the promised revenues, we’ll actually lose income tax revenue as affiliates move to other states.”

 

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