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Affiliate Sales Tax Battle Heating Up

By July 1, 2009

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Jean Murray, About.com's Guide to Business Law/Taxes provides some insight into a battle over taxes that is heating up. This battle that is being waged in an increasing number of states has forced Amazon to terminate its affiliate marketing program in Rhode Island (North Carolina affiliates have also reportedly been let go) because Rhode Island is working on legislation which would require Amazon to collect sales tax on sales credited to their Rhode Island affiliates. Affiliates in Hawaii and Minnesota have also been mentioned as likely to be impacted, if not now then in the near future.

Cash-strapped budgets in states across the U.S. are forcing state legislators to find new ways to generate revenues. In essence, they are trying to circumvent national protection against Internet sales taxes, which itself is really only a temporary agreement to not tax online sales for the time being.

Amazon has lashed out, saying its affiliates do not constitute a "presence" in that state and rather than pay sales tax on those revenues it is dropping affiliates in states with such legislation. But, keep in mind, this only the beginning. This could be a substantial shakeup in the ability to earn income from affiliate programs in general, depending on your state of residence and it could also affect online sales revenues in general. It is an issue that certainly bears watching, and perhaps a bit of old-fashioned consumer activism to get legislators to back off.

The state legislators probably reasoned that these are big corporations that can afford to fork over state sales taxes. But in order to do so, sales tax will need to be added to purchases from these states and in a very competitive online market retailers are reluctant to do that. So the choice for a company like Amazon is either to start adding sales tax to these sales or cut their affiliates in these states off at the knees. In the end, it's the little guy that is getting shafted once again.

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