Overstock.com cancels advertising affiliates in four states
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[UPDATED: Overstock has also announced it is reinstating its Hawaii program.]
[UPDATED: Less than one day after Overstock.com pulled its affiliate advertisers in California, the online retailer announced it would reinstate the program.
The reversal comes after Gov. Arnold Schwarzenegger vetoed legislation that would have required online merchants that operate advertising contracts with third-party websites to collect sales taxes.
“After passing the largest tax increase in California history, it makes absolutely no sense to go back to the taxpayers to solve the current shortfall -- that’s why yesterday I vetoed the majority vote tax increase passed by the legislature,’ Schwarzenegger said in a statement. ‘With unemployment at an all-time high, we should be doing everything we can to keep jobs and create jobs in California. That is why my Administration immediately contacted Overstock.com when we learned of this news and, I am pleased to announce Overstock.com has reversed its decision and will continue to do business with affiliates here in California.”
Jonathan Johnson, president of Overstock, said: ‘So long as the governor’s feet are planted in concrete, so are Overstock’s and we will keep our California-based affiliates turned on.’]
Overstock.com, expanding on Amazon.com‘s recent actions, has canceled its affiliate advertisers in four states, including California, to avoid legislation that would require the online retailer to collect sales taxes from customers.
The other states are Hawaii, North Carolina and Rhode Island.
At issue is a company program that lets thousands of small businesses earn money by posting ads for Overstock and its products on their websites. If a consumer clicks through and buys something, Overstock gives a referral fee to the third-party website.
Currently, states can levy sales taxes on Internet commerce only when the Web company has a ‘physical presence’ in the state, such as a corporate office, store or warehouse. Overstock, for example, is based in Salt Lake City and must collect sales taxes on purchases made online by Utah residents but not on purchases made from residents of other states.
But cash-starved states are looking for new sources of revenue, and several are arguing that these third-party advertising contracts at Overstock and other Internet retailers constitute a physical presence. That would allow the states to collect sales taxes from online sales at such companies.
California lawmakers are proposing a tax on affiliate advertising, but Gov. Schwarzenegger has said he opposes any new taxes.
‘It’s awful to have to terminate these relationships with affiliates simply because they live in states where unconstitutional laws are being passed,” said Patrick Byrne, Overstock.com’s chairman and chief executive. “However, politicians have to remember that a tax is a price that government charges for a service, and when they raise their prices, we’re going to buy less of their services.”
Internet giant Amazon.com pulled its website affiliates in Rhode Island on Monday, three days after canceling the program in North Carolina.
Last year, Overstock canceled the contracts of 3,400 of its New York advertising affiliates and sued the state when New York enacted the first of these anti-Internet-advertising laws. The suit is still pending along with a sister suit brought by Amazon.
Overstock executives say they plan to sever ties with their affiliate advertising websites in any state that passes or ‘appears to be close’ to passing similar laws.
“Internet advertising is a tidy little business that can be done by just about anyone, anywhere on the globe, and when states unwisely and unconstitutionally pass these laws, their local Internet ad business will quickly go dark, and that ad business will simply migrate to states more friendly to Internet commerce,’ said Overstock.com President Jonathan Johnson.
‘In the end, the only thing to be accomplished by these laws will be to put more local citizens out of work -- exactly the wrong choice in a down economy,” he said.
-- Andrea Chang
