As revenue-hungry states eye Internet retailers as possible sources of new taxes, Amazon.com Inc. is firing back.
Already, the nation's largest Internet retailer has cut ties with its affiliate websites in two states to avoid legislation that would require the company to collect sales taxes from its customers there. And it is fighting similar tax proposals in several other states, including California.
At issue is the company's Associates Program, which lets thousands of small businesses earn money by posting ads for Amazon and its products on their websites. If a consumer clicks through and buys something, Amazon gives a referral fee -- as much as a 15% cut on the sale -- to the third-party website.
Currently, states can levy sales taxes on Internet commerce only when the Web company has a "physical presence" in the state, such as a corporate office, store or warehouse.
Seattle-based Amazon, for instance, must charge sales taxes on purchases made online by Washington state residents. But Amazon customers in nearly every other state don't have to pay sales taxes when they buy from the site.
Now several states are arguing that these third-party advertising contracts at Amazon and other Internet retailers constitute a physical presence. The states are looking to those companies to charge sales taxes.
On Monday, Amazon cut its ties with Rhode Island affiliates after the state's Assembly passed legislation requiring the company to collect taxes; three days earlier, Amazon canceled its program in North Carolina.
"We feel that the way the state legislatures are going about this is inappropriate," said Patty Smith, an Amazon spokeswoman. "It places an unconstitutional burden on interstate commerce for a state to require a seller without a physical presence in that state to collect sales tax."
Similar legislation is awaiting action in California's state government, prompting Amazon to send a letter to Gov. Arnold Schwarzenegger last week saying it opposed the move.
"If this new tax collection scheme were enacted, Amazon would have little choice but to end its advertising relationships with California-based participants in the Amazon 'Associates Program,' " the letter said. "Thus, this provision would provide no new tax revenue collected by Amazon or others who sever their relationships with California-based advertisers."
