Link to Seattle Times Article:
http://seattletimes.nwsource.com/html/businesstechnology/2011292498_amazontax09.html
Amazon has ended its affiliate advertising program in Colorado. The decision by the internet retailer is a direct response to new Colorado requirements for reporting of sales tax by vendors.
From the Times article:
“”There is a right way for Colorado to pursue its revenue goals, but this new law is a wrong way,” Amazon said in its letter to affiliates, urging them to tell state lawmakers how they feel about the new regulations.”
“In a statement, (Gov. Bill )Ritter accused the company of “simply trying to avoid compliance with Colorado law,” adding that it’s “unfairly punishing Colorado businesses in the process.”"
Background:
Amazon is at the forefront of the battles between the states and internet retailers. While this area of controversy is typically refered to as Internet Sales Tax, the sales taxes at issue are not directly related to the internet’s role in the underlying transactions. Actually, the issue is not a new one: since the first sales tax legislation, the states have pushed for expansion of the class of transactions to be subject to the sales tax collection and remittance, while retailers and the consuming public have applied countervailing pressure to preclude as many transactions as possible from the realm of taxable sales.
The current focus of the states surrounds the interpretation of nexus. Nexus describes the physical presence a vendor has in a state, nexus must be established before a state can compel a vendor to collect sales tax on sales within their borders. Colorado has chosen to avoid the prickly and largely untested expansion of nexus tactic, instead relying on drastic changes to the reporting and administrative burdens placed on vendors who do not collect Colorado sales tax.
As an industry leader and ubiquitous web presence, Amazon has become a lightning rod for litigation over this issue. While Amazon’s size makes it an obvious target of expanded state collection efforts, its size also gives it the access to the extensive legal resources required to pursue various challenges to the new aggresive state tactics.
The affiliate advertising model utilizes local websites to advertise for retailers like Amazon, earning a small fee for each surfer who visits the retailer’s site via links and ads from the website. Some states, most recently and notably, New York, have made determinations that the contractual relationship between retailers and affiliate advertisers triggers nexus and thus the requirement for the retailer to collect sales tax on each transaction. While Colorado has not chosen to pursue this method, Amazon has reacted to the new Colorado reporting requirements by dropping their affiliate advertising program in Colorado.
Colorado:
A critical distinction in Colorado is that Colorado did not deem that affiliate advertising triggers nexus. Instead, the Colorado rules now require retailers who do not collect sales tax to report all in-state sales to Colorado, even if the retailer does not collect or remit sales tax. The practical result of the new rules will be that retailers who have no legal requirement to report sales tax or collect sales tax will need to perform the same tax calculations as though they were collecting sales tax, and are required to meet additional use tax reporting requirements.
On its face, Amazon’s decision in Colorado is similar to ones it had made in Rhode Island and North Carolina. In those states, Amazon’s decision was a direct rebuke of new rules that expanded the definition of nexus to include the type of affiliate advertising Amazon is dropping in Colorado. However, in Colorado, the state backed down from an outright declaration that affiliate advertising would trigger nexus. Instead, Colorado has instituted new rules which require internet retailers to report in-state sales. The Amazon decision to drop affilliate advertisers does not directly affect its requirements under the new rules.
The motivation for Amazon’s decision is perhaps political. The Amazon press release describes the company’s belief that the Colorado rules are intended to create such an adminsitrative burden that companies will ‘give in’ and begin to voluntarily collect sales tax.
So , the crux of Amazon’s resistance to the Colorado rules is their perception that the rules’ true purpose is to force collection of sales taxes by retailers who lack the Constitutionally required nexus.
In response to the Amazon position that the Colorado legislature has perfomed an “end around” the nexus requirement, state Senator Rollie Heath made this statement:
Also see at The Colorado Independent: http://coloradoindependent.com/48639/amazons-baffling-response-to-colorados-web-sales-tax-suggests-a-legal-strategy
