By Luanne Teoh on 07-01-2011

In one swift move of the pen is mightier than the sword, Governor Jerry Brown signed a legislation into effect on June 29th requiring large out-of-state retailers to collect sales taxes on purchases that their California customers make on the Internet.

Getting the taxes, which consumers typically don’t pay to the state if online merchants don’t charge them, is “a common-sense idea,” said Gov. Jerry Brown. The new tax collection requirement, part of budget-related legislation is expected to raise an estimated $317 million a year in new state and local government revenue.

This means shopping on places like Amazon is going to get more expensive. And with that legislation into effect, Amazon has also terminated its contract with its California affiliates — These California based marketing affiliates will no longer be paid any commissions for referrals of click-through customers they send to Amazon.com

This move will have the biggest impact on small businesses in CA who are Amazon.com affiliates. Most of these afiliates have fewer than 75 employees. According to Rebecca Madigan, Executive Director of trade group Performance Marketing Association, over 25,000 affiliates in California, especially larger ones with dozens of employees, are likely to leave the state.

Amazon, which is based out of Seattle, Washington attempted to explain its position to its affiliates by saying — “We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors. As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective.”

It is understandable that the legistlation has received strong opposition from Amazon — and it is most probably due to the online giant losing its competitive advantage over brick and mortar / retail stores. Amazon has one of the most competitive prices online when compared to traditional retailers. Brown’s signature on the budget bills is aimed at closing a loophole that freed Amazon and other out-of-state retailers from collecting sales taxes for California.

On June 29th itself, we received an email from Amazon as follows:

However, it’s not all woe for Californians — starting today, the CA statewide sales tax rate drops by one percentage point — a penny on the dollar! Every item purchased from an ice cream cone to a car will cost less overall. According to LA Times, on average, a family of four will save more than $1,000 a year.

About Luanne Teoh

Luanne is a senior correspondent for BizTechDay focused on Small Business Tech, Mobile and China based in San Francisco. In the last 17 years, she has helped launch start-ups and turned around failing operations. Her international work experience include both public and private corporations in Southeast Asia, Australia and North America. She has previously worked for Oracle Corporation, SonyBMG Music, Universal Music, Catcha Media and SOH Inc. Apart from a keen interest in technology, Luanne is also and avid explorer of the globe, cultures and people.

One Response to “Amazon Abandons California Affiliates”

1. christine Says:
   July 3rd, 2011 at 10:25 am

   Thanks for an interesting read. Will the California Google Adsense affiliate program be next on the chopping block?

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