Web retailers, states tussle over tax rules

Published: Thursday, July 2, 2009 9:19 p.m. MDT
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The amount of money at stake overall for state governments is somewhat murky. According to a recent University of Tennessee study, uncollected state and local taxes from online sales could total $7 billion this year. However, only a small part of this would stem from consumer purchases, because transactions between businesses make up the bulk of e-commerce sales. Consumers are generally supposed to pay a "use tax" themselves on online purchases, but few do.

Because any extra revenue is precious, several states, such as New York, have passed laws seeking to cash in on Web retailers' affiliate relationships, while others are considering doing so.

Amazon cut off affiliates in North Carolina in late June, anticipating legislation requiring it to collect sales tax will soon pass there. The company has also stopped working with affiliates in Rhode Island and Hawaii because of similar laws that already have passed. Discount retailer Overstock.com Inc. and jewelry marketer Blue Nile Inc. also closed down affiliate programs in Hawaii, Rhode Island and North Carolina, and Overstock stopped working with affiliates in New York last year.

Hawaii's Republican governor, Linda Lingle, vetoed the bill Wednesday, so Amazon, Blue Nile and Overstock.com said Thursday they plan to reinstate affiliates there if the state's Democratic majority does not override Lingle's decision.

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Rebecca Madigan, founder of Performance Marketing Alliance — based in Camarillo, Calif. — which represents affiliate marketers, called the new state rules "pretty devastating." Echoing opinions of several online retailers and associates, Madigan argues that the nation's estimated 200,000 affiliate marketers are advertisers, not salespeople.

"They don't deliver product, they don't take any money from a consumer, and most of the time they don't even know who the consumer is," she said. Because the tax crackdown could curtail the business generated by affiliates, "the states are sort of shooting themselves in the feet," she said.

Recent comments

It appears that it is hard for a state to charge a tax when there...

Rick | July 3, 2009 at 9:06 p.m.

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