Amazon is in the midst of a fierce fight with states that want online retailers to collect sales taxes on purchases made by their residents. A number of states have passed laws expanding what it means for a business to have a physical presence in a state, making it so that the use of affiliates there — those earning commissions by referring visitors to online retailers from their own websites — requires a Web retailer to collect taxes on purchases made in that state.
The states are looking for ways to bring in more revenue without violating a 1992 U.S. Supreme Court ruling that prohibits a state from forcing businesses to collect sales taxes unless the business has a physical presence, such as a store, in that state. When consumers order from out-of-state retailers, they’re supposed to pay the tax that is due, but they rarely do and it’s hard to enforce.
Online retailers such as Amazon are resisting being deputized as tax collectors, though. One of the ways Amazon has been reacting to these laws is by cutting ties with thousands of its affiliates in states such as Illinois and Arkansas. Most recently, Amazon stopped working with its affiliates in California in June to protest a new sales tax rule there.
During its second-quarter conference call with analysts, Tom Szkutak, Amazon’s chief financial officer, was asked about the sales tax issue.
QUESTION: Can you give an update on the sales tax issue?
ANSWER: You know, I think in terms of the sales tax issue in total, the way you should think about it is we support a federal simplified approach as we have for more than 10 years. We think in the U.S. that the federal solution’s right way to solve this. Also keep in mind as you think about our global business, we already collect sales tax equivalent in … approximately half of our business across the world and, again, we think the right solution to the U.S. is a federal solution.
QUESTION: Any plans to cut off more affiliates?
ANSWER: You know, I really can’t comment on that. We’re incredibly pleased to have our affiliates. We continue to work with them and not much more I could add to that.