Amazon shuts Web associates as sales taxes loom

SAN FRANCISCO, USA:Online retailer Amazon.com is pulling the plug on its Internet associates program in Rhode Island in retaliation for potentially having to pay a new sales tax to the state, its second such move in a week.

In an email sent Sunday to its Rhode Island associates -- which receive a cut from Amazon for sending customers on to Amazon's Web site from their own -- the company said it was closing its program due to what it called an "unconstitutional tax collection scheme" passed by the General Assembly.

The bill has yet to be signed.

Last week, Amazon shut its associates program in North Carolina and shot off a letter to California lawmakers, warning them that a similar bill introduced in that state's Assembly would force Amazon to end its program in the wealthiest U.S. state.

Some states, searching for ways to increase revenues in the recession, are mulling the option of taxing out-of-state Internet retailers, following in the footsteps of New York, which passed such legislation last year.

In January, a judge threw out a lawsuit brought by Amazon that challenged the New York law. Litigation is still pending and Amazon is still operating its New York associates program.

Through Amazon's "Associates Program," the company pays unaffiliated Web site operators across the country a commission if they advertise Amazon on their sites. Those ads often allow consumers to click through from the advertiser's Web site to Amazon.com.

Amazon, which is based in Seattle, does not disclose how much revenue it derives from its associates, nor how much traffic is directed to its site through such programs.

But Forrester Research Inc analyst Sucharita Mulpuru estimated that 10 percent of Amazon's sales could come from associates -- although much of that could be from margin-eroding coupon sites.

"It's a double-edged sword," Mulpuru said. "There may be some incrementality but they're often low-margin orders and there's a cost associated with it.

"It couldn't have been such a materially significant part of their revenue in the first place, that's what it comes down to," she added. "Affiliates are nice to have but by no stretch of the imagination are they going to make or break Amazon's Web site."

Associates can earn up to 15 percent of a product sale, though fees vary by product category, according to Amazon spokeswoman Patty Smith.

Other states considering a similar tax collection option include Hawaii and Connecticut, said Smith.

Shares of Amazon ended 1 percent lower at $83.03 on Nasdaq.