Amazon cuts affiliate ties in more states over taxes

Amazon has shut down its affiliates program in Connecticut and Arkansas over the controversial issue of collecting state taxes.

The company announced the move in letters to affiliates Friday, noting that contracts with all Connecticut residents who participate in the Amazon Associates Program would be terminated effective immediately, while contracts with affiliates in Arkansas will be terminated on July 24.

Affiliates of the Associates Program are typically Web site owners and bloggers who link to Amazon on their sites as a way of driving traffic to the online retailer. In return, they receive a commission if a sale is made.

Though Amazon isn't required to collect taxes in states where it has no presence, many cash-strapped local governments have tried to force the company to pay taxes in states where affiliates are located. Amazon naturally has challenged that requirement, a move that has forced the company to shut down its affiliate programs as it fights the tax regulations.

The retailer has terminated similar agreements in other states, including Illinois, Colorado, North Carolina, and Rhode Island, and has threatened to do the same in other states where affiliates are located.

In its letters to Connecticut and Arkansas affiliates, the company blamed the budgets signed by the governors of those states that force it to collect tax from online purchases even though Amazon has no physical presence in the states. Because of the new state tax laws, Amazon said it was "compelled" to shut down the affiliates programs.

"We opposed this new tax law because it is unconstitutional and counterproductive," Amazon said in the letter to Connecticut affiliates. "It was supported by big-box retailers, most of which are based outside Connecticut, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue."

In a recent interview, Amazon CEO Jeff Bezos condemned the drive to collect sales tax, arguing that Amazon is no different than big retail chains that don't collect sales tax in states where they don't have what's known as a "nexus," or presence. The CEO said Amazon's point of view is that the collection of taxes among the states should be simplified, referring to a plan called the Streamlined Sales Tax Initiative.

"The right place to fix this is with federal legislation," Bezos added. "That's where it can be fixed properly."