Amazon Cuts Off Connecticut Following Sales Tax Dispute

Paul Lilly

The United States has a long history of fighting against unfair taxes (Boston Tea Party, anyone?), and while Amazon's battle is of a different sort than when the country was founded, the e-tailer feels as though it's the victim of greed by state officials who have the audacity to seek sales tax. Rather than comply with new laws that keep popping up around the country, Amazon has chosen to take its ball and run to different playgrounds, most recently turning its back on Connecticut.

Prompting Amazon's breakup with Connecticut is a new state law that attempts to tax the eCommerce giant through its Associates Program. This program allows website owners to place Amazon.com ads on their sites, and then receive a percentage of any purchases made through those ads, the Examiner's Michael Santo explains . Under the new so-called "Amazon tax" law, online retailers (like Amazon) who have agreements with locally owned websites are considered to have a presence in that state, and are thus subject to sales tax.

"We opposed this new tax law because it is unconstitutional and counterproductive," Amazon said in a letter to its Connecticut affiliates. "It was supported by big-box retailers, most of which are based outside Connecticut, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue."

Amazon has been falling back on a 1992 Supreme Court decision in which it was ruled that out-of-state retailers can't be required to collect sales tax on purchases sent to states where they don't have a physical presence. Amazon collects taxes in Kansas, Kentucky, New York, North Dakota, and Washington, the five states in which it has a physical location. But other states have found an end-around to the 1992 Supreme Court ruling by going after Amazon's affiliates.

Overstock.com is another major eCommerce company fighting the same battle. As both run out of states to cut ties with, this could be an issue that, once again, will be up to the Supreme Court to decide.

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