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Will 'Amazon Tax' Kill Small Biz Affiliate Programs?

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By Cynthia Hsu, Esq. on July 01, 2011 10:02 AM

For some small businesses or solo entrepreneurs, referring buyers over to Amazon or other online retail giants can mean serious coin. But, the effect of an internet tax on affiliate programs (the so-called "Amazon tax"), might mean an end to many affiliate relationships nationwide.

California recently passed a law that would require internet retailers like Amazon to charge customers for sales tax on purchases made on the site.

The new law, signed by Gov. Jerry Brown, would only make Amazon required to charge customers sales tax if they have connection to California via workers, warehouses or other offices, reports the Los Angeles Times. What does that mean for affiliates who rely on click-through customers?

It means the end, sadly. The retail giant has already sent emails to about 10,000 affiliates and other partners telling them that they would be terminating their contract.

There are about 25,000 affiliates in California. Some even have dozens of employees, and if they want to continue using the affiliate program as an income stream they will be forced to move out of state, reports the Los Angeles Times.

Other states have also seen their affiliate programs get taken away as a result of new internet tax legislation. New York, Illinois, Rhode Island and North Carolina had their affiliate programs pulled, reports Ars Technica.

As a business that relies on affiliate programs, should you be worried? Possibly. Not all states have passed an Amazon tax, though states including Arizona, Hawaii, Louisiana, Massachusetts, Minnesota, Mississippi, Missouri, New Mexico, Tennessee, Texas and Vermont are all considering similar measures. And, it's likely that Amazon will push back hard if those states pass similar measures.

The chilling effect that the internet tax has on affiliate programs is unquestionable. But, the so-called "Amazon tax" might actually just be leveling the playing field. While customers are supposed to report their internet purchases on their tax returns and pay sales tax that way, most don't, effectively giving internet retailers a huge advantage.

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