Connecticut Affiliates Left Swimming Upstream
Connecticut-based website owners awoke to some startling news last Friday when amazon.com, the nation’s largest online retailer, announced that it had terminated its Connecticut Associates Program. The program, which allows website owners to earn money by advertising Amazon products on their sites, was pulled by Amazon after the state passed a law taxing online purchases starting July 1.
In the past, the state had been unable to collect sales tax on online purchases because these Internet-based retailers lack a physical presence. The “Amazon law” qualifies large e-commerce sites as having a presence due to these local affiliates, therefore any sales generated through them is taxable.
Signed into effect last month by Connecticut Democratic Gov. Dannel Malloy, the state expects to raise $9.4 million by collecting sales tax from online purchases made on Connecticut-based websites.
But at what cost?
For starters, businesses are relocating elsewhere. Amazon has already offered to reinstate affiliates if they move to a different state and other Internet retailers are also following suit. For example, Overstock.com eliminated its Connecticut affiliates program in late May for the same reason.
Can anyone blame Gov. Malloy for attempting to lift the state out of its dire financial crisis? Of course not. But doing so under the banner of equalizing the playing field for online and traditional stores isn’t entirely believable. If the state legislature sought to provide a fair business arena, it would have made a concentrated effort years ago – the Connecticut Associates Program has been in place for over a decade - to change it. One cannot help but believe it isn’t just a mere coincidence the state is finally looking to collect sales tax from online retailers when additional sources of revenue are few and far between.
While this hasn’t been the first time Amazon has opposed states intent on establishing an online sales tax (the retail giant has shut down Associates programs in Hawaii, Colorado, North Carolina, Arkansas and Illinois), the true extent of both its business and political influence has begun to emerge. Even so, the constitutionality of imposing new state taxes on online purchases will have to be settled in court. Amazon is currently challenging a similar law in New York that was introduced two years ago.
For now, the question remains: do online retailers have the same obligation to collect sales tax as other companies with a physical presence?
Kevin Anthony is an intern at CJP Communications.