In what’s become standard operating procedure for the two e-tail giants, Amazon and Overstock have wasted no time in terminating their respective affiliate programs in California after the state become the seventh in the nation to initiate an online sales tax yesterday.
California Governor Jerry Brown signed the law into effect Wednesday as part of a broader piece of legislation addressing state budget issues, calling it “a common sense idea.”
As is the case with similar laws in other U.S. states, the new law enables California’s tax board to collect sales taxes from out-of-state retailers that operate affiliate programs in the state. Proponents of the measure estimate that it could add up to $317 million a year in revenue to the state’s coffers.
Naturally, brick and mortar merchants in California are thrilled with the decision, saying it is long overdue and that it should finally level a playing field that has been slanted in the direction of the likes of Amazon and Overstock all along.
On the other side, things aren’t quite as rosy. Following through on promises they both made leading up to the law’s passage, Amazon and Overstock quickly announced the end of their California affiliate programs.
“We oppose this bill because it is unconstitutional and counterproductive,” Amazon said in an email to state affiliates notifying them that the program had been terminated. “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.”
Overstock, which reportedly did $1 billion in e-tail business in 2010, offered a very similar proclamation.
“We think this law is unconstitutional,” said Mark Griffin, the company’s general counsel. “We sent a final note to our California affiliates today. It’s a business decision that we had to make.”
California’s Board of Equalization estimates that there are more than 25,000 affiliates in the state, 10,000 of which worked with Amazon. Those people will now need to find alternative means of income in the wake of the law’s passage.
Despite pulling out of the state, Amazon may not be completely off the hook. The law has a secondary provision included that forces retailers with subsidiaries in California to collect sales tax as well. Amazon has several subsidiaries in California, such as Lab126, which develops the Kindle e-reader.
California joining the six other states nationwide that have enacted online sales tax laws is certainly foreboding for retailers and affiliates everywhere else. If even the nation’s wealthiest state must resort to implementing such a law in order to try to dig itself out from a mountain of debt, it stands to reason that the floodgates could soon open as smaller and less wealthy states do the same.
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