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Amazon.com cuts ties to state's businesses

Hartford - Online retailing giant Amazon.com notified its network of Connecticut-based bloggers and Internet entrepreneurs Friday that it has canceled its business relationships with them because of a new sales tax law that the General Assembly passed this week as part of Gov. Dannel P. Malloy's budget.

"Unfortunately, the budget signed by Governor Malloy contains a sales tax provision that compels us to terminate this program for Connecticut-based participants, effective immediately," the company said in a mass email Friday morning.

The provision expands the definition of "physical presence" so that Internet businesses that don't have bricks-and-mortar stores in the state will nevertheless be required to collect sales tax from Connecticut online shoppers.

Connecticut residents have long been required to self-report and pay a "use tax" on online and out-of-state purchases, but few do.

Under the new law, the state can force online retailers such as Amazon to collect sales tax from Connecticut shoppers if the companies sell more than $2,000 worth of goods a year on their websites through the referrals of local affiliates. One example of an affiliate is a blogger who puts an Amazon ad on his site in order to get a small portion of the sale proceeds when a customer makes a purchase after having clicked on the ad.

Malloy's budget anticipates $9.4 million in revenue through the new law in the fiscal year beginning July 1. And an additional $500,000 is expected because the final version of the law applies to purchases made since May 4.

But all that revenue is now in jeopardy.

Kevin Sullivan, commissioner of the state Department of Revenue Services, warned in April that if online retailers such as Amazon react to the new law by cutting affiliates, the state's anticipated revenue "will be uncollectable" and "in fact, the result will likely be a net revenue loss."

Amazon's email did not say how many affiliates the company has in Connecticut; an Amazon representative did not respond to a request for comment Friday.

Another online retailer, Overstock.com, announced last month that it will end its own affiliates program in Connecticut because of Malloy's sales tax plans.

President Jonathan Johnson said in an interview Friday that it has 20 affiliates, including coupon aggregation websites and bloggers.

"It wouldn't surprise me if Connecticut affiliates who are making decent income will decide to move to another state that is more business-friendly," Johnson said.

Amazon has canceled affiliates programs in every state but one where lawmakers enacted similar laws. The company is keeping its New York affiliates as it continues a court battle in that state over the law.

The laws were designed to circumvent a 1992 Supreme Court ruling that forbid state governments from compelling sellers to collect sales taxes if the sellers lacked an in-state physical presence.

Proponents of the laws note that the ruling predated the era of Internet shopping and argue that local businesses are disadvantaged when online retailers can offer tax-free shopping.

Sullivan struck a more upbeat tone in his response to Amazon's actions.

"They can run but they cannot hide," Sullivan said Friday in a statement. "Instead of making a simple and inexpensive adjustment in their automated billing processes, Amazon and the others will do anything to keep competing unfairly and pass tax obligations along to unsuspecting state residents who then have to remit the resulting use tax."

Amazon warned state officials last year that it would sever ties with its affiliates if Connecticut were to enact a similar sales tax measure then under discussion in the legislature. That bill eventually died after several lawmakers said they couldn't support it for fear of Amazon's retaliation.

Amazon's latest letter on Friday inspired some disgruntled blog posts by unhappy bloggers now down a revenue stream.

"Small Town Mommy" offered her readers the following analysis:

"Connecticut legislature tries to access that fabulous potential Internet sales taxes that have made so many state politicians drool. But they didn't bother to explore the ramifications. Had they thought to ask me, I could have told them the consequences of their dumb move."

j.reindl@theday.com

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