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RALEIGH — Kayla Fay opened an e-mail from Amazon.com on Wednesday warning about a pending change to state tax law and could think only one thing.

“They’re killing me, they’re killing my business,” said Fay, who runs a number of Web sites, including www.goaskmom.com, which provides information for parents of children with attention deficit problems.

Besides providing free content, Fay’s Web site promotes books and other items that are sold by Amazon.com. Every time someone clicks through a link on her Web site and buys from Amazon, Fay gets a cut of the sale.

Amazon warned affiliates like Fay on Wednesday that they would cut North Carolina residents out of the program if a pending change in the state’s sales tax code becomes law. That change, outlined in the House version of the budget, would require Amazon to collect taxes on items bought through its Tar Heel affiliates.

For many people, their cut from Amazon is small potatoes, maybe a couple of hundred dollars per year. But Fay is among those who have built a business by way of affiliate marketing. Payments from Amazon and another similar vendor make up the bulk of the $40,000 she clears from her business every year.

“It will put a big crimp in my business if Amazon cuts us off,” Fay said.

The tax law change is part of an effort by budget writers to close what Gov. Bev Perdue described as a $4.7 billion hole in the state budget. To help bridge that gap, House lawmakers proposed a bevy of tax increases and new taxes to raise about $784 million.

Fiscal analysts estimate a new click-through tax would raise $13.2 million next year and $17.8 million the year after. Part of that income would come from sales taxes applied to purchases of digital books and music, such as that downloaded from iTunes.

But the click-through provisions would also apply to physical items that are bought after clicking through a Web site such as Fay’s.

“The way the legislature is going about this is an unconstitutional tax collection, and it’s not fair,” said Patty Smith, a spokesman for Seattle-based Amazon.com.

Smith declined to say how many affiliates Amazon has in North Carolina. The company’s affiliate program has been running since 1996 and affiliates can make up to 15 percent of the proceeds from the sale of items, she said.

New York recently enacted a similar law that Amazon challenged, but the state Supreme Court rejected the retailer’s claim.

Smith said the company is continuing legal challenges in New York and has dissuaded lawmakers in other states, such as Maryland, from enacting similar proposals.

She said that the company has been in contact with House and Senate leaders about the measure’s impact. But the company may be getting its best lobbying corps from people such as Kay who are affected by the tax.

They began organizing themselves via the social networking tool Twitter on Wednesday and by Wednesday afternoon had planned a meeting to plot strategy.

Meanwhile, House and Senate lawmakers, with Perdue, began negotiations this week to work out a final budget plan that’s due by July 1. It’s unclear whether the click-through tax provision will survive.

Paul Luebke, a Durham Democrat and the senior finance chairman in the House, declined to comment. Other tax writers acknowledged they had been contacted by people affected.

Sen. David Hoyle, a Dallas Democrat and one of the lead tax writers in the Senate, said online retailers such as Amazon needed to be willing to step up and collect taxes.
If an online retailer doesn’t collect sales taxes, individuals are supposed to pay those taxes with their annual income tax.

“You know how that works,” Hoyle said. “Nobody does it.”

If someone pays taxes on a book purchased at a brick-and-mortar store in the state — which generates land, sales and income taxes — online retailers ought to be willing to collect taxes as well.

“It ain’t fair,” Hoyle said.

Contact Mark Binker at (919) 832-5549 or mark.binker
@news-record.com