Amazon, the online retailing giant, is fighting Maine’s new law to collect taxes from Internet sales by ending its relationship with digital entrepreneurs in the state.
It’s a step that has become standard for Amazon, which has resisted state-based initiatives to collect taxes on digital purchases.
In a program known as Amazon Associates, participants place ads or put product reviews on their websites that link to products that can be bought at Amazon.com. The associates receive commissions of 4 percent to 8.5 percent if customers buy products on Amazon through the ads or product links.
Amazon’s decision to end the program in Maine means that associates here will no longer receive those commissions.
Maine associates began getting notices from Amazon on Thursday that the company will terminate their relationship effective Oct. 6.
In its letter, the company cited the state law to beef up tax collections from online sales, which takes effect Oct. 9. It claimed that the law is unconstitutional.
It’s unclear how many Amazon associates there are in Maine, and a spokesman for Amazon would not say.
Several associates forwarded their notices to the Portland Press Herald, including Hillstock LLC, a company that licenses vintage images and hosts various websites and blogs on vintage topics.
Hillstock’s owner, Averyl Hill of Scarborough, said she became an Amazon associate about 10 years ago, adding links to products on Amazon from her website, blog entries and articles she published online.
“The money I made then was incidental and never more than a couple of hundred dollars annually,” she said in an email Friday.
However, a few weeks ago, Hill published an ebook and linked to it from her blog under the associate program.
That allowed her to add to her share from the book sales — 35-70 percent of the $9.95 price, depending on where the book is downloaded — with commissions from the associate program.
“I was looking at making $1,000 to $2,000 annually on those commissions, maybe more if my sales increase,” she said. “I had no idea this cancellation was coming.”
The loss won’t break her business, Hill said, “but as a small business, every dollar matters.”
Adrienne Bennett, spokeswoman for Gov. Paul LePage, said Friday that the governor’s office has received inquiries about the issue.
The law was signed by LePage, who has said it will ensure that companies that do business in Maine pay sales tax.
The governor, along with the Maine State Chamber of Commerce, has argued that uncollected sales taxes put Maine-based businesses at a competitive disadvantage.
The law passed with broad bipartisan support, but was opposed by lawmakers in the House who are aligned with the conservative tea party movement.
“Unfortunately, a damaging inequity exists in the retail marketplace because some online retailers are not required to collect Maine sales tax, but Maine retailers are,” LePage said in a prepared statement. “Not only does this hurt Maine businesses, it hurts the state.”
Online purchases are already subject to Maine’s sales tax. But the collection from out-of-state retailers is left to Mainers, who are supposed to report those purchases on their income tax returns.
In 2011, only about 9.5 percent of Maine tax filers reported and paid “use tax” for out-of-state purchases, according to Maine Revenue Services. That brought in about $2.8 million.
Maine Revenue Services has estimated that the state loses $20 million a year in uncollected revenue.
States cannot force out-of-state companies to collect their sales taxes. Under a 1992 U.S. Supreme Court ruling, a state can require a retailer to collect taxes on out-of-state purchases only if the retailer has a physical presence in the state.
In response, states including Maine have tried to broaden the legal definition of what constitutes a company’s physical presence.
Maine’s new law is modeled after laws in other states. Missouri, Colorado and Illinois have similar laws, which have prompted Amazon to eliminate its associates program there.
Amazon’s decision appears designed to limit its exposure to the portion of Maine’s law that broadens the definition of a company’s physical presence in the state.
Mike Allen, LePage’s chief of tax policy, said the new law is designed to recapture some of the lost revenue from online sales, but the state expects to get only a small portion.
“We’re never going to get the whole piece of lost revenues,” he said.
The issue has dogged other states, which are seeking the taxes to bolster cash-strapped budgets.
The National Governors Association has estimated that states fail to collect $23 billion a year in Internet transactions.
The group noted recently that the “explosive growth of electronic commerce” — more than 10 percent annually — means states’ sales tax bases are eroding.
Maine’s law is designed to align with passage of the federal Marketplace Fairness Act, which would allow states to collect sales taxes from out-of-state retailers. The bill passed in the U.S. Senate, 69-27, with Republican Sen. Susan Collins and independent Sen. Angus King supporting it.
The U.S. House has not taken up the bill. Republican House Speaker John Boehner has said the law would be a “mess” because it would require businesses to collect taxes in states with various tax rates.
In its notice to associates, Amazon said it will resume the program in Maine if Congress enacts the Marketplace Fairness Act.
It told associates that they will receive commissions earned before Oct. 7.
Staff Writer Edward D. Murphy contributed to this report.
Steve Mistler can be contacted at 791-6345 or at: