Amazon Pulls the Plug on Rhode Island Affiliates

6/29/09

Seattle’s mighty Amazon isn’t feeling too friendly toward the Ocean State. This morning, the online retail giant sent out a terse notice to its Rhode Island affiliates, informing them that their accounts were closed effective June 29th, due to impending changes to the state’s tax laws that apply to certain online purchases. This echoes a similar move the company made three days ago in North Carolina, after that state enacted a similar tax change.

The affiliates are members of a program called Amazon Associates, in which participants place ads for Amazon products on their websites. Users are funneled to Amazon’s website through the links, and each affiliate receives a commission if purchases are made. A new provision in the Rhode Island state budget will require Amazon to collect sales taxes on all purchases made through the affiliates program. Amazon’s letter, which was posted on Seattle news website TechFlash, calls the provision “an unconstitutional tax collection scheme.”

The legislature says it is merely closing a loophole. Under the current incarnation of Rhode Island tax law, Amazon is not required to charge sales tax on purchases since it does not have a “physical presence” in the state. The tax (here called a “use tax”) does legally have to be paid, though—it’s just that most consumers do not take it upon themselves to send the state government a check for seven percent of their Battlestar Galactica DVD box set and other affiliates-related purchases. Many other states, including financially floundering California, are looking to enact similar proposals.

Steven Costantino, chair of the Assembly’s Finance Committee, told the Providence Journal that the changes in tax law were a “matter of fairness” to local businesses with actual physical presences in the state. The loophole-closing provision is based on previous legislation enacted in New York state— called, appropriately enough, the “Amazon law.”

Roxanne is an intern in Xconomy's Boston office. You can reach her at rpalmer@xconomy.com. Follow @

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