Once again, Amazon.com
The online retailer sent out notices to its thousands of affiliate marketers in Colorado, informing them that it was discontinuing the commission-generating program for residents of the state.
Amazon Associates is a program where businesses, entrepreneurs, and online hobbyists can earn money by referring leads to the company. Amazon pays as much as 15% of resulting sales back to its affiliates. Whether it's a website operator dedicated to generating third-party e-commerce transactions or a modest blogger with a passion for model trains who links to Amazon rail wares, a healthy cross-section of the country relies on Amazon for either incremental revenue or as an actual business model.
Why is Amazon pulling out of Colorado? Well, just as Amazon Associates bowed out of North Carolina, Rhode Island, and Hawaii last summer, the state's move to tax out-of-state online retailers is at the crux of the decision.
Budget-strapped states have turned to out-of-state e-tailers, enacting laws that would force retailers with affiliates residing in the state to collect state sales tax from transactions by its residents.
Amazon tacks on state sales tax in the few states where it has physical distribution centers, but does not throughout most of the country.
In a realm where every competitor is a click away, Amazon is able to price its wares advantageously as it competes against e-tailers with a physical presence. Meanwhile, Barnes & Noble
Should online retailers with active affiliate-marketing programs such as Amazon and Overstock.com
Amazon feels that axing its associates helps free it from the in-state presence that triggers the automatic taxation process in many of these state laws. Colorado legislators are arguing otherwise in this particular case, but the end result is that Amazon is flexing its muscles -- pointing out how aggressive state taxation tactics may cost its constituents in terms of the revenue generated by state-based businesses leaning on Amazon for commission payments. It's likely a more popular argument than pointing out that all Coloradoans will be paying more with state sales tax tacked on throughout the site, since that would pit it against hometown retailers.
Amazon is tackling this problem now, hoping to send a message to other states pondering similar legislation. Then again, in a dicey economy where many state budgets are out of whack, this political fight will likely continue to cross into new states.
Is Amazon.com right or wrong here? Share your thoughts in the comments box below.
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Longtime Fool contributor Rick Munarriz has been shopping online since the early 1990s, even before Amazon.com was around. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.