Last week, Colorado Governor Bill Ritter signed into law a new bill that would require online retailers to collect sales tax from Colorado residents who purchase products online if the retailers have an affiliation with a Colorado company. These affiliations can include in-state advertisers, bloggers, and social media promoters, or basically anyone who actively engages in solicitation on behalf of the retailer. At least one online retailer, Overstock.com, has severed ties with all of its affiliates in Colorado due to the new law.
In the Outdoor Industry, affiliate programs are one of the top revenue producers for on-line retailers. Companies like REI, Backcountry.com, MountainGear, Patagonia, Moosejaw, Rock/Creek, and nearly any brand with any Web-based direct-to-consumer sales rely on affiliate marketing for at least a portion of their e-commerce revenues.
Internet-based outdoor retailers, along with the brick and mortar specialty outdoor retailers, produce $7.6 billion annually in retail sales and services across Colorado, suggests Alex Boian, director of trade policy at Outdoor Industry Association. He estimates that it accounts for 4% of gross state product. Boian cautioned that the new internet sales tax may put Colorado at a disadvantage in attracting internet-based outdoor businesses.
Outdoor retailers contacted by The B.O.S.S. Report declined to comment or said they need time to analyze the new legislation before they know how they will react.
The bill is expected to have little impact on multi-channel retailers like Patagonia and REI since they already have physical locations within the state and already collect sales tax on their on-line orders.
Similar laws, collectively dubbed Amazon Laws, have gone into effect in New York, North Carolina and Rhode Island and retailers have reacted in different ways. In New York, both Amazon.com and Overstock.com are fighting the law, claiming it is unconstitutional. In the meantime, Amazon.com continues to pay sales tax to the state, but Overstock has severed all ties with its affiliates in New York. In Rhode Island and North Carolina most e-commerce retailers also severed ties completely with their affiliates.
In North Carolina, Amazon sent a letter to all affiliates before the new tax law was passed in July of 2009. It stated that Amazon was forced to sever ties because of,
The unconstitutional tax collection scheme expected to be passed any day now by the North Carolina state legislature (the General Assembly) and signed by the governor. As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 26.
California also attempted to pass a similar bill, but it was eventually vetoed by Governor Arnold Schwarzenegger after extensive lobbying by local affiliates. Lawmakers in California estimated that the law would have generated in excess of $150 million in income for the state.
The Colorado State Government expects the bill will bring in $4.7 million in the first full year of collections and will impact more than 4,000 existing affiliate programs in the state.
