Amazon Cuts Off Hawaii Affiliates

By GEOFFREY A. FOWLER

Amazon.com Inc. has informed its marketing affiliates in Hawaii that it is ending its business with them in order to avoid collecting sales tax in the state.

Following in the footsteps of North Carolina and Rhode Island, lawmakers in Hawaii have passed legislation that would require companies to collect sales tax if they have marketing affiliates in the state. Affiliate marketers run blogs or Web sites and get a sales commission by featuring links to outside e-commerce sites.

Hawaii's governor has until July 15 to potentially veto the legislation, but it has an effective date of July 1.

In an e-mail sent to Hawaii affiliates on Tuesday, Amazon said it would end its accounts with them effective June 30. "We were forced to take this unfortunate action in anticipation of actual enactment because of the uncertainty and timing of a veto, and the possibility that a veto could be overridden," Amazon wrote.

A handful of cash-strapped states have weighed laws that would use the presence of affiliate marketers to force e-commerce companies into collecting sales tax. New York passed such legislation last year, and Amazon has begun collecting sales tax there as it challenges the law in court.

But Amazon, the largest online-only retailer by sales in the U.S., took a more aggressive approach with other states that have copied New York's legislation. In recent days, it has exited the affiliate business altogether in North Carolina and Rhode Island, depriving the states of sales tax revenue, income for affiliates in the state, and income tax on those affiliates.
"It's one of those things that on the surface looks interesting, but we believe the states are just shooting themselves in the foot," said Rebecca Madigan, the founder of an affiliate trade group called the Performance Marketing Alliance.

A similar bill was set aside in California, but could be revived as the state attempts to reconcile its budget in the coming days.

Source: Wall Street Journal Online