Amazon.com and O.co (aka Overstock.com) have canceled their California affiliate advertising contracts as a result of the state’s July 1-enacted sales tax law, which requires out-of-state retailers to collect 7.25% base tax on online purchases made by in-state residents.
Amazon.com notified approximately 10,000 advertising affiliates in California that it would terminate the partnerships on June 29, according to several reports. O.co has severed ties with “hundreds” of affiliates, said Mark Griffin, O.co VP of legal.
“We take these actions reluctantly,” said Griffin, who referred to the law as “unconstitutional” and a violation of the 1992 Quill Corp. v. North Dakota decision, which said that retailers that do not have a physical presence in a state do not have to collect and remit sales taxes there.
“We don’t use services in these localities [where the laws have been enacted] the way bricks and mortars do,” said Griffin. “We collect and remit taxes where we have a physical presence, which is the law that was recorded 20 years ago.”
Griffin said turning off the affiliates program “doesn’t affect” O.co’s business.
“This illustrates the fact that ad programs are numerous, and there are quite a few ways that advertising can obtain traffic. The law was short-sighted because it results in businesses in California losing money.”
Griffin did say, however, that O.co would like to use the affiliate channel and that it has been profitable for the company.
Similar laws have passed in Illinois, Arkansas, Connecticut, North Carolina, Rhode Island and New York. Amazon.com and O.co fought the New York ruling but were ruled against. The case is currently under appeal.
“The revenues that are said to be flowing from these efforts don’t materialize and states like Rhode Island have tried to repeal them,” said Griffin.
Attempts in Rhode Island, Colorado and Oklahoma have been made to repeal the sales tax laws.
The California sales tax legislation was signed by California Gov. Jerry Brown on Wednesday June 29. The revenue generated by the taxes is expected to raise approximately $317 million a year.
“When we have a fire at corporate headquarters, we don’t call the Sacramento fire department,” explained Griffin. “Companies that have a physical presence in the state can participate in the politics of that state. How do we influence that? We don’t have employees in California. We have no way to influence what the tax rates are.”
O.co will dedicate the spending that would have gone to affiliates to reward consumers that have spent more than $300 in the past year with a free Club O loyalty program membership and a $10 account credit.
Amazon.com could not be reached in time for comment.