Amazon cuts off Colo. affiliates because of tax

3/09/2010 03:14:01 AM

DENVER – Amazon.com Inc. cut ties Monday with Colorado online businesses that help it sell products because of a new state law aimed at getting out-of-state, online retailers to collect sales tax.

The move hurts businesses — many of them small, home-based operations — that earn money by using their Web sites and blogs to link customers to online retailers. Colorado has at least 4,200 such businesses, known as affiliates or associates, accounting for about 5,000 jobs, and most of them rely on Amazon to some degree, according to their trade group, the Performance Marketing Association.

The group's executive director, Rebecca Madigan, said some get only about 10 percent of their revenue from Amazon but others are totally reliant on it.

Colorado's largest affiliate, ShopAtHome.com, works with 5,000 online merchants and will be able to recover from the lost business, president Marc Braunstein said. But many "mom and pop" affiliates will suffer.

"There are a lot of people who are going to be hurt, and that's a shame," Braunstein said.

In an e-mail to affiliates, Amazon said the new sales tax regulations, which took effect last week, were burdensome and unlike rules in any other state. An Amazon spokeswoman declined to elaborate.

The company previously cut off affiliates in two other states that passed online sales tax laws, Rhode Island and North Carolina. Those states said online retailers had a presence there through affiliates and therefore had to pay sales tax. At the urging of affiliates, Colorado lawmakers took a different approach that attempted to leave affiliates out of the fight.

The law here says retailers can either collect sales tax or send customers an annual statement telling them how much they spent and how much sales tax they should pay the state on their own. The state would be able to force retailers to turn over customer sales records to enforce the law.

Democratic lawmakers, including Gov. Bill Ritter, criticized Amazon for cutting off affiliates, with some calling it "corporate bullying." They said Amazon will still be on the hook to either collect the tax or tell their customers to pay it.

"They've done nothing here but spit in our face," Senate Majority Leader John Morse said.

Braunstein said he was also puzzled by the move and wondered if the company was trying to make some kind of point.

Republican lawmakers, who opposed the online sales tax bill and other tax hikes to balance the budget, criticized Democrats for pushing ahead with it.

"It's exactly what we said would happen. They're going to put people out of work. It's a game of chicken with people and their jobs, and they lost," said House Minority Leader Mike May, R-Parker.

Sen. Greg Brophy, R-Wray, said lawmakers should move to repeal the law.

"Their actions have had real-life consequences for real-life Colorado citizens," he said.