Amazon Fires Affiliates and Independents Fire Back

Early this week, Amazon.com created a firestorm when it announced it had fired all of its Colorado-based online affiliates to protest a state sales tax law. The law, HB10-1193, which was signed by Gov. Bill Ritter on February 24, requires out-of-state retailers to either collect and remit sales tax for purchases made by Colorado residents or to inform their Colorado customers that they owe use tax on any purchase they have made.

The move by Amazon.com sparked a public outcry from independent booksellers, Democratic legislators, Gov. Ritter, and even a few online affiliates, who expressed surprise over Amazon.com's decision to fire its affiliates even after the Colorado Senate Finance Committee amended the sales tax legislation in an effort to stave off the threat of Amazon.com delisting its affiliates.

"Amazon has taken a disappointing -- and completely unjustified -- step of ending its relationship with associates," Gov. Ritter said, as reported by the Wall Street Journal. "While Amazon is blaming a new state law for its action, the fact is that Amazon is simply trying to avoid compliance with Colorado law and is unfairly punishing Colorado businesses in the process."

In response to the online giant's decision, 19 Colorado booksellers, along with the American Booksellers Association and the Mountains & Plains Independent Booksellers Association (MPIBA), wrote to Gov. Ritter to thank him for publicly decrying Amazon's decision and to urge his continued support of HB10-1193 as pressure from Republican legislators, led by Colorado Sen. Greg Brophy (R-1), mounts to amend or repeal the bill. Brophy tweeted (@SenatorBrophy) that if HB10-1193 is not amended or repealed now, it will be "ASAP when GOP takes over."

In the letter to Gov. Ritter, the booksellers and associations wrote that Amazon.com's actions "are nothing short of outrageous coming after the state's good faith efforts to fashion a compromise that sought to take into account the affiliates' concerns." (Read the letter in full, below.)

Colorado's sales tax bill is unlike e-fairness laws passed in other states, including New York, North Carolina, and Rhode Island, which make clear that an active network of in-state affiliates establishes nexus and which require an out-of-state retailer to collect sales tax for online sales. Instead, Colorado's law only asks out-of-state retailers that do not collect and remit sales tax to inform residents of the amount of use tax that they owe for online purchases and to provide year-end statements to the Colorado Revenue Department.

"The fact that Amazon refuses to comply with this law is a clear indication that the retailing giant is only interested in maintaining its significant competitive advantage over the bricks-and-mortar retailers in the state -- and that it is more than willing to use its online affiliates as pawns to do so," said ABA CEO Oren Teicher.

Teicher explained that ABA, MPIBA, and Colorado independent booksellers supported the original version of HB10-1193, which would have clarified state sales tax laws to require out-of-state retailers with nexus in the state via online affiliates, who act as sales agents for remote retailers, to collect and remit sales tax.

"We weren't completely happy with the amendments made by the Senate Finance Committee," said Teicher. "We believe that shifting the responsibility for tax collection away from the retailers makes it much more difficult to enforce the law. That said, we understand that legislators and Gov. Ritter are faced with difficult decisions in these tough economic times, and it is disappointing that their efforts to craft a compromise solution are being opposed by an intransient, out-of-state corporation that puts its own interests above all others."

In the letter to the governor, the groups stressed: "Unfortunately, despite the best intentions of the Senate Finance Committee, Amazon went ahead and fired its affiliates anyway. With its latest salvo, it is manifestly clear that Amazon.com will oppose any efforts to enforce existing sales tax laws and that legislators' efforts to bend over backwards to placate this corporate giant in an effort to shield in-state affiliate businesses are pointless." --David Grogan

March 10, 2010

The Honorable Bill Ritter
Governor of Colorado
136 State Capitol
Denver, CO 80203-1792

Dear Governor Ritter:

As independent booksellers in the state, we fully support your statements regarding the unfortunate decision made by Amazon.com to fire its Colorado-based online affiliates in the wake of your signing into law HB10-1193, the state's attempt to level the playing field among retailers by establishing sales tax equity. The corporate retailer's actions are nothing short of outrageous coming after the state's good faith efforts to fashion a compromise that sought to take into account the affiliates' concerns.

Unlike sales tax equity legislation in other states, which makes clear that an active network of in-state affiliates establishes nexus -- and requires an out-of-state retailer to collect sales tax for online sales -- Colorado's law now merely asks these retailers to inform residents of the amount of use tax that they owe for online purchases. Amazon's refusal to do even this clearly shows that it is only interested in maintaining its significant competitive advantage over the bricks-and-mortar retailers in the state -- and that it is more than willing to use its online affiliates as pawns to do so.

To be clear, we supported the original version of HB10-1193, which would have clarified state sales tax laws to require out-of-state retailers with nexus in the state via online affiliates, who act as sales agents for remote retailers, to collect and remit sales tax. The tax avoidance being practiced by out-of-state retailers with online affiliates acting as sales agents in Colorado is putting our businesses at an unfair competitive disadvantage, is cutting into our sales, and is significantly affecting our bottom line and ability to maintain employment levels and create new jobs.

Admittedly, we were not completely satisfied with the amended bill. We believed that, by shifting the responsibility for tax collection away from retailers, the state has established a cumbersome collection method. However, we recognized that the committee made these well-intended changes for fear that, if not amended, the original legislation would result in Amazon.com firing its Colorado-based online affiliates. Amazon's recent actions make clear that the online giant could care less about Colorado, its economy, or its residents. Their sole commitment is to their bottom line, and their hardball tactics make online affiliates the collateral damage in Amazon's fight to maintain an unfair strategic advantage over established state businesses.

Our argument is not now, nor has it ever been, with online affiliates. If the amended bill had worked to level the playing field for us and had saved online affiliates important sales commissions, then it was win-win, which we would have supported. After the bill's passage, our only request had been that our legislators monitor the situation to determine if use tax revenue was being collected.

Unfortunately, despite the best intentions of the Senate Finance Committee, Amazon went ahead and fired its affiliates anyway. With its latest salvo, it is manifestly clear that Amazon.com will oppose any efforts to enforce existing sales tax laws and that legislators' efforts to bend over backwards to placate this corporate giant in an effort to shield in-state affiliate businesses are pointless.

Governor Ritter, there are 30,000 retailers in the state that are being hurt by sales tax inequity. Something had to be done to protect Colorado's in-state business and the approximately 438,000 people they employ. We certainly hope Amazon's recent decision doesn't convince you otherwise. Moreover, we urge you both to publicly call Amazon to task for its intransigence and bullying and to monitor the effectiveness of the amended version of HB10-1193. Should you find that the law is failing to establish sales tax equity and to recoup the millions of lost sales tax dollars due the state, we respectfully ask you to reconsider the original version of HB10-1193 in the next legislative session.

Thank you for your consideration.

Sincerely,