NEW YORK (Reuters) - Amazon.com Inc warned its 10,000-plus California sales affiliates on Wednesday that it may be forced to sever ties with them should the state begin taxing their online sales.
The wealthiest U.S. state became the latest -- on the heels of Illinois and Connecticut -- to be dropped by Amazon from its nationwide sales-affiliate program, which relies on in-state websites to drive its own online business.
Its affiliates, paid a fee when they funnel traffic to Amazon that results in a sale, have found themselves in the middle of a battle between Amazon and several states that argue the online retailer has a duty to collect sales taxes when those affiliates operate within their state.
Amazon counters that such taxes spur job and income losses. On Tuesday, California's legislature passed a budget that incorporates such an online sales tax and on Wednesday, Governor Jerry Brown signed the relevant bill.
"We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors," Amazon said in an email sent to Californian affiliates Wednesday.
"As a result, we will terminate contracts with all California residents that are participants in the Amazon Associates Program as of the date (if any) that the California law becomes effective."
Analysts say Amazon could cut its partnership with affiliates in more U.S. states that require the online retailer to collect sales taxes.
Many traditional chains such as Best Buy and Sears have openly voiced concerns about online-only retailers gaining an unfair advantage by avoiding sales taxes in states where they do not maintain a corporate presence.
Lawmakers in states -- many facing huge budget deficits -- say Amazon and other online retailers such as Overstock.com have a duty to collect tax because its affiliates operate locally.
Amazon has already announced plans to cancel its affiliate program in Illinois in response to the state's new law to target online retailers. Texas is considering taxing online sales as well.
Reporting by Alistair Barr; Writing by Eddie Chan; Editing by Lisa Shumaker