LITTLE ROCK, Ark.
Amazon.com said Friday that it would drop its online affiliates in Arkansas in response to a new state law that would have required the online retailer to start charging sales tax.
Lawmakers passed a bill earlier this year to require out-of-state online retailers like Amazon to collect sales tax from customers if their annual sales in the state exceed $10,000.
The bill applied to retailers with online affiliates, even if they don't have a physical presence in the state. Amazon pays advertising fees to a network of so-called Amazon Associates in the state, who promote the company on their websites.
State law requires consumers to pay sales taxes on items they buy online, but the burden is on them to report the purchases. Bentonville-based Wal-Mart Stores Inc. and other state retailers say that opens a loophole that hurts their businesses.
Amazon opposed changing the law, and this week, it notified associates by email that it would terminate their contracts on July 24.
"We opposed this new law because it is unconstitutional and counterproductive," the company said in an email. "It was supported by big-box retailers that seek to harm the affiliate advertising programs of their competitors."
Amazon has made the same move in other states, including Illinois and Connecticut, which changed their sales tax laws. Overstock.com also ended its Arkansas program due to the law.
A growing number of states have tried to collect more sales taxes online to help fill holes in their budgets. How much sales tax revenue is lost with online sales is unclear, although a study from the University of Tennessee estimated a total of $10.14 billion this year, assuming total e-commerce sales of $3.49 trillion.
But Amazon argues the new law won't help much.
"Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue," it said in the email. "We deeply regret that its enactment forces this action."
Lawmakers argued the change wasn't a tax increase because it allowed the state to collect taxes it was due already.
Opponents argued the bill could violate a 1992 Supreme Court ruling that said states couldn't force retailers to collect taxes for them unless the retailers had a physical presence, or "nexus," within the state.
Matt DeCample, spokesman for Arkansas Gov. Mike Beebe, who signed the bill in April, called Amazon's move "unfortunate."
"We, of course, can't stop them from doing that," DeCample said. "They are taking this out on their affiliates and then trying to blame us for their own actions."
Amazon Associates members said they were disappointed about the program's end, even if they didn't make much money from it.
Amy Bradley-Hole, 36, of Little Rock, said she uses Amazon links in book reviews posted on her blog. She gets a small percentage of any sales and estimates she earns "a few hundred dollars a year" from the program.
"I'm frustrated with both sides, honestly," she said. "I can see why the law was passed, and I can also see why Amazon is mad about it. I don't like that Amazon is taking it out on the affiliates and the associates, though."
Kelly Ellerbee, 48, of Austin, Ark., said that although he wouldn't miss the small amount of money he earns from Amazon links on his three websites, others might.
"It does hurt people," he said. "That income stream is going to be taken away."