Early this year, online retail giant Amazon.com lost its battle to fight the sales tax imposed by the State of New York when a New York state judge dismissed Amazon.com's lawsuit alleging the company had no requirement to pay sales tax in New York due to a lack of physical presence. The New York legislature has ruled that because Amazon.com has an affiliates program whereby other Internet companies can provide Amazon links on their Web sites and receive a commission on sales, the company in effect has sales associates in New York and that that event is enough to create a sort of nexus in the state, thus making sales conducted through those affiliates taxable and subject to New York sales tax.
While Amazon appeals the New York decision, the company is continuing the fight on different battlegrounds. Most recently, Amazon has announced that it will end its affiliates program for all North Carolina businesses effective July 1 as that state goes forward with sales tax legislation similar to the New York program.
The following e-mail message was sent on June 17 from Amazon.com to all North Carolina affiliates:
We regret to inform you that the North Carolina state legislature (the General Assembly) appears ready to enact an unconstitutional tax collection scheme that would leave Amazon.com little choice but to end its relationships with North Carolina-based Associates. You are receiving this e-mail because our records indicate that you are an Amazon Associate and resident of North Carolina.
Please note that this is not an immediate termination notice and you are still a valued participant in the Associates Program. All referral fees earned on qualified traffic will continue to be paid as planned.
But because the new law is drafted to go into effect once enacted â which could happen in the next two weeks â we will have to terminate the participation of all North Carolina residents in the Amazon Associates program on or before that same day. After the termination day, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com nor will we accept new applications for the Associates program from North Carolina residents.
The unfortunate consequences of this legislation on North Carolina residents like you were explained in detail to key senators and representatives in Raleigh, including the leadership of the Senate, House, and both chambers' finance committees. Other states, including Maryland, Minnesota, and Tennessee, considered nearly identical schemes, but rejected these proposals largely because of the adverse impact on their states' residents.
The North Carolina General Assembly's website is www.ncleg.net and additional information may be obtained from the Performance Marketing Alliance at www.performancemarketingalliance.com.
We thank you for being part of the Amazon Associates program, and we will apprise you of the General Assembly's action on this matter.
"We believe the way North Carolina is going about collecting the sales tax is unconstitutional," Amazon spokeswoman Patty Smith told The Wall Street Journal. "It isn't appropriate for us to have to comply with an unconstitutional burden."
Hawaii, cash-strapped California, and Connecticut are in various stages of considering similar legislation. Other states, including Maryland, Minnesota, and Tennessee, have considered and then decided against pursuing such legislation.