The state of Colorado just passed a statute (House Bill 10-1193 (PDF)) that is targeted at out-of-state retailers who sell into Colorado. It is an attempt to improve collection of sales and use taxes (which residents owe on purchases, even if the retailer is from out of state and does not collect those taxes). Amazon and some other out-of-state retailers have responded by eliminating their affiliate programs for members in Colorado.

CAVEAT: I Am Not A Lawyer. If this law might affect you, talk to lawyer and do not rely on my speculation. If you are a lawyer and you see something here that is incorrect, please post a comment and I will remove or repair the incorrect content. If you are interested in the gory details, here are a couple of links: LeverageSALT coverage and Affiliate Advocacy web site’s coverage. You could also look at the bill itself (see the link above), but be aware that it is dense and easy to misunderstand.

So, why am I bothering to write about this? It’s because of Amazon’s response. They have “fired” all of their Colorado Amazon Associates, terminating their affiliate accounts effective last Monday (March 8). As you might guess, there has been a fair amount of anger, speculation, and venting over this.

As far as I can tell (remember, I Am Not A Lawyer, so my speculation is worth about the same 2 cents as everyone else’s), there is no direct reason why the existence of affiliates changes Amazon’s obligation under this new law. In fact, there have been stories that say that the state removed provisions that targeted affiliates (unlike what has happened in other states that have targeted affiliate programs).

I think Amazon and other out-of-state retailers are in general trying to avoid two things:

1. Collecting sales tax for states where they do not have a presence (“nexus” in tax lingo).
2. Reporting out-of-state sales so that a state can go after purchasers for sales/use taxes

This law (yeah, yeah, IANAL) does not appear to change anything related to requirements for collecting sales taxes. It does explicitly add a reporting requirement, but that requirement does not appear to relate in any way to affiliates; it is for any company that sells to a Colorado resident.

So, why did Amazon “fire” its affiliates in Colorado?

I believe that Amazon “fired” its several thousand (I’ve heard there are about 4,200) Colorado affiliates at least in part to mobilize them to lobby the state to amend or repeal the statute. Even though it seems like the statute does not target affiliates, I suspect they are relying on the vagueness of the statute to obscure things enough that affiliates will direct their anger towards the state.

If that interpretation is correct, then the strategy is hardball, plain and simple, though it may turn out to be effective. While I’m angry, I have to admire their chutzpah, and have to admit that I might have been tempted to do the same thing in their shoes (though in the end I would be unwilling to play that kind of hardball with loyal affiliates (and customers), especially given the impact it will have on those who rely on affiliate referrals for significant income).

For XML Press, which is a Colorado-based company, the impact is small. We were an Amazon Associate, but referrals were a very small part of our business. What we have done is to replace our referral code with our authors’ codes (as long as they are not Coloradans). They get a little bonus, and Amazon doesn’t avoid paying the referral fees that would have gone to XML Press.