• California Legislature Passes “Amazon Law”, While Connecticut General Assembly Updates Amazon Bill To Retroactively Target Online Retailers
  • June 24, 2011
  • Law Firm: Chamberlain Hrdlicka White Williams Aughtry - Houston Office
  • On June 15, 2011, the California Legislature followed an increasing number of states in passing an “Amazon” bill.  The California Bill, like many of its predecessors, is attempting to expand its authority to require out-of-state online retailers, such as Amazon, to collect sales tax on online purchases made by in-state residents and still comply with the constitutional requirement that the online retailer has a “physical presence” in the state.  According to the Bill, and similar bills, a physical presence includes the physical presence of the online retailer’s “affiliates” - i.e., in-state Website operators who place ads or banners on their website for out-of-state online retailers and receive a commission or other type of compensation when customers make purchases via the ads.  The bill was forwarded to Governor Jerry Brown for approval or veto.

    During 2009, Governor Schwarzenegger vetoed a similar Amazon bill after Amazon.com and Overstock.com threatened to discontinue their affiliate associations within the state.  In other states that have passed similar Amazon laws, Amazon.com, Overstock.com and other online retailers have responded by eliminating all affiliate connections within the state.  Amazon.com alone currently has 10,000 affiliates inCalifornia.  The unanswered question is whether Amazon’s (and other online retailers’) disassociation with “affiliates” will reduce income taxes paid by the affiliates by more than the use taxes being collected pursuant to the Bill.

    Connecticut is facing potential problems of its own relating to its enactment of an Amazon law.  In response to the Governor’s May 4th passage of the law, during June Amazon announced its intention to cut all ties with its Connecticut based affiliates by the commencement date of the legislation, July 1st.  On June 7th, the General Assembly passed a budget update bill, which would change the effective date of the Amazon law from July 1st to May 4th. Connecticut could face legal action if it attempts to retroactively force online retailer’s to collect sales taxes based upon the updated bill.