California Gov. Jerry Brown has signed into law the affiliate nexus tax. This law requires online retailers to collect sales tax if they have affiliates in the state. In an anticipatory act of non-compliance, Amazon has announced it will shut down all California affiliate operations.
The new California law
The new California law, signed by Brown at the end of June, defines a “nexus” as any affiliate in a state. For California, that means each of the 25,000 affiliates in the state count as a “location” for Amazon. California lawmakers estimate that the law will bring in $200 million. This assumes that business will continue without major changes. Amazon has warned its affiliates that they will be shutting down affiliates in the state when the law takes effect.
Amazon claims the law is unconstitutional
California is not the first state to pass a nexus law in an effort to collect sales tax from online retailers. In every state that has passed a nexus law, many online retailers have shut down affiliate programs. Amazon.com and Overstock.com have both claimed that the law is unconstitutional because it is an individual state interfering with interstate commerce. The ACLU has agreed, pointing out that the Supreme Court ruled that mail-order companies were only responsible for sales tax in locations where they had a brick-and-mortar “nexus.”
Not all businesses dislike nexus laws
Though two large businesses, Amazon.com and Overstock.com, as well as many small businesses have spoken out against nexus laws. At the same time, many other large businesses have embraced nexus laws as “e-fairness” legislation. Barnes & Noble has specifically targeted dropped Amazon affiliates. Barnes & Noble has brick-and-mortar locations in almost every state, so they already have systems in place to collect the correct sales taxes. These businesses see online retail sales tax legislation as a way to balance the playing field in online sales.