E-commerce giant Overstock.com Inc. is threatening to cut ties with marketing affiliates in Massachusetts because of proposed state legislation that would force the company to collect sales tax.
Internet retailers have been protected by a 1992 US Supreme Court ruling requiring retailers to collect sales tax only in states where they have a physical presence. But bills filed in Massachusetts would expand the definition to include what are known as affiliates — bloggers and other businesses hired by online retailers to advertise the e-commerce merchants on their websites. Overstock and others typically pay a commission to affiliates when shoppers click through the ads and make purchases.
Overstock acting chief executive Jonathan E. Johnson III sent a letter this week to dozens of itsMassachusetts affiliates describing the pending bills — which are in committee — as unconstitutional and harmful to companies.
“More importantly, if any of these bills pass, Overstock.com will sever its relationships with all Massachusetts-based affiliate advertisers before any bill becomes law,” Johnson wrote in the letter, obtained by the Globe. “We have done this in each state where such legislation has passed.”
In 2011, Overstock stopped working with thousands of independent marketing affiliates after five states, including New York and Rhode Island, passed laws requiring the Utah company to collect sales taxes from residents because it used in-state advertising affiliates to help sell products. In total, Overstock has cut ties with partners in nine states because of these laws.
“Customers find affiliates elsewhere, and sometimes affiliates wind up leaving states and relocating businesses elsewhere,” Johnson said .
Traditional retailers have pushed for laws they say would create parity between them and Internet retailers, claiming online sellers have an unfair competitive advantage because they do not charge sales tax.
In December, Massachusetts reached an agreement with Amazon.com Inc., the world’s largest online merchant, to begin collecting the state’s 6.25 percent sales tax this November. Amazon had expanded its presence in Massachusetts by acquiring a local technology firm and signing a lease in Cambridge.
“These bills could hurt the income of small website owners who attempt to make a living on the tiny commissions that companies like Overstock pay,” said Edgar Dworsky, who runs the consumer education site ConsumerWorld.org.
He said he earned 91 cents in commission from Overstock between September and December.
“I don’t stand to lose anything,” Dworsky said, “but others do.”