Amazon.com ended its associate affiliation programs with Web sites in Connecticut earlier this month when the state legislature passed a requirement that the giant online retailer require sales tax collections on online purchases made by consumers who click through Connecticut retailers' sites to Amazon or an Amazon service. And on Wednesday of this week, Amazon announced it is ending its affiliation programs in California after similar legislation was passed requiring online retailers to collect sales tax.

 

Amazon provides its links to retailers who display them on their Web sites through its Amazon Associates Program. In addition to providing the links, the Amazon Associates Program pays the online retailer fees on a monthly basis for "qualifying purchases shipped, streamed, or downloaded (as applicable) in a given month."

 

The Connecticut and California laws and so-called Amazon laws in other states view the fees as commission income and claim that commission income meets the requirements of a business presence, or nexus, in the state. Nexus is a legal concept that determines whether or not a connection exists, and, in the case of multi-state taxing issues, the concept of nexus comes in to play when determining whether a connection is strong enough to trigger a requirement to pay sales or use taxes on a transaction. For example, companies conducting business in a state in which they have a physical presence such as a store or warehouse are considered to have nexus.

 

In a message to its Connecticut affiliates, Amazon said, "We opposed this new tax law because it is unconstitutional and counterproductive. It was supported by big-box retailers, most of which are based outside Connecticut, 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 outlook for click through nexus laws nationally is uncertain. Some very large states have passed laws similar to Connecticut's recently, as they struggle with huge budget deficits. But Texas Governor Rick Perry vetoed the online sales tax law passed by the Texas state legislature. Amazon is in discussions with Texas and South Carolina to open distribution sites in these states in return for an online sales tax exemption, according RealPoints, a Dallas report on commercial real estate.