Amazon Terminates Colorado Affiliates Over New Internet Tax Law

Colorado has gone after Amazon and other retailers in an effort to collect sales taxes. In response, Amazon has terminated all its Colorado affiliates over the new internet tax law.

The war over sales tax continues. States are facing huge deficits. Instead of cutting their spending and learning to live within their budgets, they are seeking out new revenue resources. The one that keeps popping up over and over is the sales tax not being paid on purchases by citizens in the state on the internet. Amazon.com is the biggest retailer out there, so the different tax efforts are loosely referred to as the "Amazon tax."



The typical scenario plays out where a state passes its little internet sales tax bill. The state claims that the fact the online retailer has affiliates within the state creates a legal basis for collecting the sales tax on purchases made by citizens of the particular state. Online retailers react by terminating all the affiliates and breaking the connection. This is exactly what just happened as Amazon terminated all of its Colorado affiliates upon the passage of the state's new internet tax law.

This particular situation is different from all previous state efforts. Colorado did not try to argue that the presences of affiliates created jurisdiction within the state. Instead, it passed a law that required online retailers with over $100,000 in sales in Colorado to either collect the sales tax or forward the sales and purchaser information so the state could levy a tax on its citizens.



Given this approach, why would Amazon terminate all its affiliates in the state? It may seem like a knee jerk reaction, but it really isn't. The company is preparing to sue the state over the law. In doing so, it wants to make absolutely sure it has not physical ties to the state that can be used by a court to uphold the state law. By terminating the affiliates, it removes any connection to the state and positions itself better for the lawsuit.

Will the Colorado be the first to prevail on both a legal and practical front in the internet sales tax battle? It is difficult to say, but it definitely has a much better chance that the affiliate strategy used by so many other states.

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