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Blue Nile terminates three affiliate programs

By Michelle Graff
July 02, 2009

Seattle--Blue Nile Inc. has confirmed to National Jeweler that it is halting its affiliate programs in three states due to changes, or pending changes, to state sales-tax laws.

The affiliate programs are defined as those in which the online diamond seller pays unaffiliated Web operators a commission if they advertise Blue Nile on their sites.

A Blue Nile spokesman said the Seattle-based company has terminated its affiliate programs in North Carolina, Rhode Island and Hawaii.

These three states have passed, or are going to pass, legislation that would make these affiliate programs akin to Blue Nile having a physical presence in the state and thereby force them to collect sales tax.

In a letter Blue Nile sent to affiliates in Hawaii and later provided to National Jeweler, the company calls the proposed tax law "unconstitutional" and states: "Blue Nile regrets the need to take this action. As the U.S. Supreme Court's 1992 Quill decision makes clear, the proposed bill is unconstitutional as it requires sellers with no physical presence in the state to collect sales tax on sales to buyers in that state."

Blue Nile goes on to state in the letter to affiliates that it is "hopeful that this unconstitutional legislation will eventually be repealed, at which point we would be happy to resume working together."

Blue Nile's spokesman said the company is evaluating similar action by other state legislatures.

When asked about the changes to state sales-tax laws, Jewelers of America (JA) Chief Operating Officer Robert Headley said that while JA hasn't been involved in individual state efforts to collect Internet sales tax, the organization has long been a proponent of federal sales-tax-fairness legislation accomplishing the same objective--to enable states to collect sales tax on Internet sales.

"This removes the unfair advantage that Internet sellers have over Main Street jewelers who must collect tax," he said. "There is considerable anecdotal evidence that sales are being lost by brick-and-mortar jewelers to Internet sellers."

JA continues to support the Sales Tax Fairness and Simplification Act, which  was introduced in the 110th Congress. Rep. William Delahunt (D-Mass.) and  Sen. Mike Enzi (R-Wyo.) plan to reintroduce the Act in the current 111th Congress as soon as they have enough support for the bill.

Blue Nile is not the only online retail giant severing its ties to affiliates.

According to Reuters, Amazon.com also has closed Internet associate programs in North Carolina, Rhode Island and Hawaii, as states, stung by revenue loss due to the recession, pass legislation to tax out-of-state Internet retailers as a way of generating extra revenue.

Other states pondering similar legislation include Connecticut and California, according to Reuters.
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