Amazon.com is warning state lawmakers it will cut off more than 10,000 affiliates in California if they pass legislation that would result in the company having to collect sales tax on purchases made through the site.
Four bills being considered by the state legislature would reclassify an Amazon advertising program that pays commissions to California website owners when they link to Amazon and a shopper buys merchandise.
The move would define Amazon's "Associates Program" as "engaged in doing business in the state," and in turn, force the company to collect state sales tax on all purchases.
In a letter to California's Board of Equalization, the agency responsible for collecting property and sales taxes, Amazon called the bills unconstitutional and said it would end business with its California affiliates if the they passed.
"If any of these new tax collection schemes were adopted, Amazon would be compelled to end its advertising relationships with well over 10,000 California-based participants in the Amazon 'Associates Program,'" Paul Misener, Amazon's VP for Global Public Policy, wrote in a February 24 letter.
The online retailer argued that the U.S. Supreme Court's 1992 Quill decision prohibits a state from collecting sales tax from a business that does not have a presence there. Since only the affiliates are located in California and not the company, Amazon argues the law is in their favor.
Amazon also said that in states where similar legislation was passed including North Carolina, Rhode Island, and Colorado, the company ended its advertising contracts with in-state affiliates. The states in those cases did not collect any taxes, lost jobs, and as a result Amazon said, the states' legislation had a negative impact on their economy.
After receiving a request in February from Texas that it pay $269 million in uncollected sales tax, Amazon closed its distribution there and moved it to Arizona.
Supporters of taxation say the company just isn't playing fair.
California State Treasurer Bill Lockyer said the company has an unfair advantage over traditional brick and mortar stores.
"I think its bulling tactics that they should be ashamed of. Its an unfair advantage they have," Lockyer told NBC LA.
Assemblywoman Nancy Skinner feels similar to Lockyer. She told Bloomberg the issue was less about revenue and more about offering a level playing field for California business. Wal-Mart, Target, Best Buy, Home Depot and others collect sales tax, she argued, and so should Amazon.
"This is really about e-fairness," Skinner told Bloomberg in an interview. "It's really to be fair and show our California Businesses that we're not hanging them out to dry."
Board of Equalization member Betty Yee said this was a tough time for the California economy and it's important that all businesses contribute their share.
"We currently have $1.2 billion in use-tax that is uncollected," Yee said.
She dismissed the notion that Amazon would be put at a disadvantage if, in addition to charging shipping, it was forced to add sales tax.
Amazon is "a more convenient option for consumers," she argued.
But Former Senator and fellow Member of the California Board of Equalization George Runner sided with Amazon.
"The Legislature needs to stop considering bills that would hurt jobs and instead start improving California’s dismal business climate so we can attract much-needed jobs to our state," Runner said in a statement.
"This is an imminent threat to California jobs," Runner warned. "Lawmakers would do well to pay attention."