I stopped using Amazon affiliate links on my blog at the beginning of March after reading that the company was threatening to end their Associates program in California if the state passed a proposed law that would require the company to collect sales tax on sales to California residents. The law would define those contract affiliates as Amazon “workers,” and therefore part of the company’s business operations within the state; state businesses pay state taxes. Amazon had already ended the program in other states that passed similar sales-tax laws affecting online commerce because of that definition, and California’s financial condition is seriously ugly, so I had no reason to doubt that this would happen here. I didn’t officially sever my connection with Amazon, but I stopped referring business to them via affiliate links.

On June 29, I was one of thousands of Amazon Associates in California who received an e-mail from the company:

“For well over a decade, the Amazon Associates Program has worked with thousands of California residents. Unfortunately, a potential new law that may be signed by Governor Brown compels us to terminate this program for California-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers – including but not limited to those referred by California-based marketing affiliates like you – even if those retailers have no physical presence in the state. 

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. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action. 

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. We will send a follow-up notice to you confirming the termination date if the California law is enacted. In the event that the California law does not become effective before September 30, 2011, we withdraw this notice.”

A few hours later, a follow-up e-mail arrived:

“Unfortunately, Governor Brown has signed into law the bill that we emailed you about earlier today. As a result of this, contracts with all California residents participating in the Amazon Associates Program are terminated effective today, June 29, 2011. Those California residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned before today will be processed and paid in full in accordance with the regular payment schedule.”

As I mentioned in my original post, my association with Amazon never earned me a dollar in referral fees, so all I’m personally losing is the monthly e-mail from them letting me know that I didn’t earn anything. However, I recognize that there could be real financial hardship for productive affiliates and for those who sold products through Amazon as a result of the termination, and I hate that they’re caught in the middle of this.

While the e-mail from Amazon states that the change to the sales-tax law was supported by “big-box retailers (…based outside California)” – which may be true – Shelf Awareness’ report on the story notes that it was also supported by small businesses, including independent booksellers, who have long fought the competitive advantage that Amazon’s tax-free sales gave the online retailer.

The Los Angeles Times reported that the over $300 million per year in new sales-tax revenues is anticipated as a result of the law, even though the tax rate itself has been reduced by 1% while the base has been expanded. What the law doesn’t seem to consider is an offsetting potential drop in income and business taxes tin the aftermath of the mass termination. The long-term effects of all of this are yet to be determined.

Avoidance of sales tax isn’t one of my primary motivations for shopping online, and having to pay it won’t make a difference in the amount of shopping I do with Amazon – their other business practices have already changed that. And I’m still happy that I (symbolically) quit before I was (actually) fired.