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Originally published March 2, 2011 at 6:01 PM | Page modified March 2, 2011 at 6:06 PM

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Amazon.com takes sales-tax fight to California, threatens to sever ties with local online advertisers

For as long as it's been around, Amazon.com has resisted collecting sales tax in the nation's most-populous state.

Seattle Times business reporter

For as long as it's been around, Amazon.com has resisted collecting sales tax in the nation's most-populous state.

Now, amid a surge of new legislative efforts to tax Internet purchases, Amazon plans to keep things the way they are, even if it means ending relationships with thousands of advertising affiliates in California.

Seattle-based Amazon threatened last week to cut off its California affiliates in response to proposed legislation requiring e-commerce companies to charge taxes on items sold to the state's residents.

California is the latest battlefront for Amazon as it tries to fend off a growing number of efforts by cash-strapped states to put an end to untaxed online sales. Last month, Amazon announced plans to close a Texas warehouse after the state hit it with a $269 million bill for four years of uncollected sales taxes.

Several California proposals would make Amazon collect the state's sales tax based on the company's relationships with local online advertisers. Amazon affiliates advertise the Internet retailer on their websites and receive compensation for any resulting sales.

In a letter to California's Board of Equalization, which oversees the collection of sales taxes, Amazon said the bills are unconstitutional because they would force retailers with no physical presence in the state to charge tax "merely on the basis of contracts with California advertisers." What's more, Amazon warned the legislation could lead to job and personal-income losses while generating little, if any, additional government revenue.

"If any of these new tax collection schemes were adopted, Amazon would be compelled to end its advertising relationships with well over 10,000 California-based participants in the Amazon 'Associates Program,'" wrote Paul Misener, vice president for global public policy at Amazon.

Misener noted that California lawmakers passed a similar measure in 2009, but Gov. Arnold Schwarzenegger vetoed the bill after Amazon threatened to sever ties with its local affiliates. Since then, Amazon has ended affiliate relationships in North Carolina, Rhode Island and Colorado because of similar legislation.

Analyst Collin Gillis, who follows Amazon for BGC Partners, said the Internet giant has less need for affiliates to advertise its website now that it "has so much brand power."

Affiliates "were more important in the early days when Amazon wasn't a clear leader in e-commerce," Gillis said.

Under a 1992 Supreme Court decision, Internet retailers do not have to collect a state's sales tax unless they have a physical presence in that state. Amazon collects sales tax in only a handful of states, one of which is Washington.

Although shoppers technically are supposed to pay taxes on their online purchases when they file their annual income returns, few do.

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By not paying sales tax, online shoppers can save anywhere from 5 to 10 percent, so Internet-only retailers such as Amazon enjoy a price advantage over traditional stores, said Sucharita Mulpuru, an e-commerce analyst with Forrester Research.

It's especially noticeable with big-ticket items and "is a significant reason why many people shop with Amazon," she said. "It's a big deal to not have to pay an extra 5 to 10 percent."

Amy Martinez: 206-464-2923 or amartinez@seattletimes.com

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