Amazon Stays Tax-Free in Calif. Despite New Law

Severing ties with about 25,000 affiliates may get them around having to charge sales tax.

By Mathew Luschek
|  Friday, Jul 1, 2011  |  Updated 2:12 PM PDT
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Amazon Stays Tax-Free in Calif. Despite New Law

Amazon vs The State of California.

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The Twitter-stream was full of posts from unhappy California Amazon Associate users Wednesday, complaining that Amazon had severed them from the affiliates program, and now we know why.

On Wednesday, Gov. Jerry Brown signed legislature that would force Amazon to begin charging California residents a 7.25% tax, because the online retail giant has affiliates in the state.

Previously, only internet companies that had a physical presence were required to do so.

Amazon, unhappy with this new law, decided to cut its ties with its 25,000 affiliates operating out of California, to get around charging tax to California consumers.

"This legislation is counterproductive and will not cause our retail business to collect sales tax for the state," said Paul Misener, Amazon's vice president of global public policy, said in a letter.

While Amazon hasn't confirmed it, California officials expect the company to sue to overturn the law.

Merchants in the state say Amazon has an advantage by allowing customers to essentially save nearly 10% by buying online.

Supporters of the legislation say the law would get the state about $200 million a year in revenue.

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