I just got an email from Amazon in regards to my Associates account because I’m a California resident. For those that don’t know, states that collect taxes on retail purchases impose these taxes on all retailers (and anyone else) who do business in that state. For years, this has only covered those businesses with a physical presence in the state, but now, California is attempting to impose these taxes on partners and affiliates of said company as well. For example, if Amazon moved its main facilities to another state (which it did), they would not collect taxes on any items purchased in California because they don’t physically operate here. Instead, they might sell items through other business partners and affiliates that can help get items out to California residents better also without collecting taxes.

The new law simply accounts for those affiliates and business partners located in California as a physical entity, thus taxes are due to be collected. Those for the argument claim that collecting these taxes will help ease the suffering of brick and mortar operations trying to compete with big online retailers. Those against it say that these online retailers will simply close up shop in those states and work out of somewhere that doesn’t impose these taxes. For the consumers, it just means that if you live in California, you will be paying the California state tax on things you purchase online—thus prices will be higher.

Here was the email I was sent today:

Hello,
For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers – including but not limited to those referred by California-based marketing affiliates like you – even if those retailers have no physical presence in the state.

We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, 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.

As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective. We will send a follow-up notice to you confirming the termination date if the California law is enacted. In the event that the California law does not become effective before September 30, 2011, we withdraw this notice. As of the termination date, California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned on or before the termination date will be processed and paid in full in accordance with the regular payment schedule.

You are receiving this email because our records indicate that you are a resident of California. If you are not currently a resident of California, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state in the near future please contact us for reinstatement into the Amazon Associates Program.

To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to California residents and will not affect their ability to purchase from Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com.

We have enjoyed working with you and other California-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to California residents. We are also working on alternative ways to help California residents monetize their websites and we will be sure to contact you when these become available.

Regards,

The Amazon Associates Team

My two cents

I guess it would have been ok if I could still run my affiliate program to help with offsetting some of the server costs for my site even if that meant paying some taxes on it, but it looks like Amazon is taking a different route. Instead of operating under a new tax law, they’re closing down operations altogether. Of course this doesn’t mean Amazon will cease to exist as a retail establishment to California residents—it just means we won’t be able to help them sell their products while making some commission.

To read more about the online sales tax laws that are ready to be signed into law around September, check out this site.