Why Are States Like Colorado Trying To Charge Sales Tax on Affiliate Sales?

Well as to the purpose, most states are having serious revenue issues. Re-cooping sales tax from online sales made to residents of the state apparently seems like a reasonable avenue for states with a sales tax. Interstate commerce rules make this difficult in reality.  While some affiliates see this as a way that states are "strong-arming" businesses into coughing up more money, I'm not so sure I agree.

What doesn't seem reasonable to me is the way large online companies are treating affiliates in those states as a way to avoid adding those sales taxes. Sales tax by states can only be charged if the company has a "physical presence" in the state - and states are using affiliates to show a physical presence.

The problems with defining "physical presence" this way are many-fold. First there is no way to guarantee that a New York based affiliate even made any referrals to someone in New York. For me, technically the "physical presence" of my website is located on a server farm in a different state than I am physically in (or maybe many states or countries depending on how many hosts you use.)

Still dropping all your affiliates in one state to try to win a court battle about "physical presence" seems overboard for these companies in my opinion. Especially since they continue making sales in these states AND charging the sales tax. See Amazon's sales tax policy for example.

I suppose it may be an effective technique to "strong arm" the state as the company is able to effectively lower the income (and income tax where applicable) of the state without necessarily lowering their own income as they still conduct business with residents of the state.

Colorado HB 1193 continues to move forward and is being passed to the Colorado Senate. Affiliates in Colorado should already be preparing for any potential backlash from Amazon and other large affiliate programs as they have already displayed in the past a willingness to leave you cold and dry while happily continuing their own business.

Probably the most important thing to do is get educated and get involved with your local Chamber and politicians to help them understand the ramifications. And then vote for those who will enact sensible legislation.  I strongly disagree that these large companies should be allowed to just drop all their affiliates this way, but this is more of an ethical business practice issue than something that could actually be prevented based on law.