Amazon terminates Associates Program in California over tax law

Whoa, look what I pulled out of my Junk Mail folder -- a "notice of termination" email from Amazon. Last year I signed up to be an Amazon Associate and collected not one cent, never having participated. For active participants, this must be a troubling day -- make that Friday.

California is broke and looking to raise cash any way it can. Earlier today, Gov. Jerry Brown signed a new tax law that would compel online retailers like Amazon to collect sales tax. The new provisions go into effect Friday. Well, hell, what can I still order online during the next 40 hours?

In the termination email, which full text is below, Amazon calls the California tax law "unconstitutional and counterproductive". I'm no First Amendment attorney, so I can't speak to the first. I suppose it could be productive if the state raises some dough (and uses it wisely) and evens competition with brick-and-mortar retailers, which don't share online shopkeepers' tax exemption.

Federal law prohibits the collection of sales tax for companies that don't have a physical presence in the state. The California law seeks to circumvent the provision by asserting that affiliates constitute physical presence -- hence Amazon's termination letter to its associates. The email leaves the date open to when the law goes into effect, which presumably is Friday. Without associates, Amazon could avoid paying taxes -- as it has done in other states passing similar laws.

Amazon pays its Associates for providing links to products. If someone clicks through and buys a product, Amazon shares some of the proceeds with the the associate. Some people support themselves largely or solely on these affiliate links.

On an Amazon discussion board, some Californians expressed their displeasure. "CA stands at #50 as least 'business friendly' state", writes Robert Johnson. "Nothing coming from Sacramento would surprise me. As #50, the only thing that will happen is that CA is now able to redefine the term 'worst state for business'".

Lionel Hutz writes: "So now that CA passed that ridiculous joke of a budget, which includes the 'nexus' language, what will Amazon.com do? I would hate to stop shopping on Amazon.com, but I refuse to give anymore money to CA than I already have to".

"I just placed an order online from a local store and was charged tax", writes a forum poster going by Mina. "I don't know what the big deal is. I would have paid tax if I went in, so why not online?"

I'm terminated but no worse for it, by not participating. I feel for the 10,000 or so Amazon Associates whose livelihood is cut off so that other Californians can order online without being charged sales tax.

Full text of Amazon's "Notice of Contract Termination":

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

What do you think about this development? Please respond in comments.

Update 10:13 p.m. PT: Amazon sent follow-up email:

Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011. Those 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 before today will be processed and paid in full in accordance with the regular payment schedule.