Amazon.com Threatens to Cut Ties With California Affiliates Over Tax Issue

Amazon.com Inc. (AMZN), the world’s largest online retailer, has threatened to sever ties with more than 10,000 affiliates in California amid a dispute with the state over proposed taxation of Internet purchases.

Four state proposals aimed at forcing Seattle-based Amazon to collect taxes from residents may be unconstitutional and lead to job losses, Paul Misener, Amazon’s vice president for global public policy, wrote in a letter to the California Board of Equalization.

The letter is the latest salvo in Amazon’s fight with state governments over sales taxes. In February, the company said it would close a Texas distribution site over a similar issue. Amazon received a request from Texas last year for $269 million in uncollected sales tax, with the state contending that since Amazon has a facility in Texas, it should be collecting such taxes for online purchases.

“This is an imminent threat to California jobs,” Board of Equalization Member Senator George Runner, who received the letter, said this week in a statement.

Amazon’s affiliates put ads for the retailer on their websites and then get compensation when shoppers click through and buy items. Californians could still shop at Amazon.com, though state businesses would miss out on the ad sales, potentially hurting tax revenue, the company said in the letter. When other legislatures passed similar provisions, Amazon terminated its affiliate relationships and then collected no sales tax for those states, according to the letter.

Earlier Fight

Amazon and California tussled over the tax issue in 2009, when the state considered a similar measure. Governor Arnold Schwarzenegger vetoed the bill after Amazon said it would terminate the affiliate relationships, according to the letter. That same year, Amazon cut ties with affiliates in Rhode Island, North Carolina and Hawaii over tax disputes.

Mary Osako, a spokeswoman for Amazon, declined to comment beyond the letter.

Amazon declined 92 cents to $168.52 at 9:46 a.m. New York time on the Nasdaq Stock Market. The shares had dropped 5.9 percent this year before today.

To contact the reporter on this story: Nick Turner in San Francisco at nturner7@bloomberg.net

To contact the editor responsible for this story: Tom Giles at Tgiles5@bloomberg.net

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