Looming Internet Sales Tax Prompts Amazon Threat to Cut Off Affiliates

California's pending legislation to collect sales tax from Amazon.com has prompted the online retailer to threaten cutting loose its affiliates. Now several retailers -- Barnes & Noble, Sears and Walmart -- are trying to get Amazon affiliates to jump ship and replace that revenue with links to other retailers, making it harder for consumers to find links to products on Amazon.

The issue of collecting internet sales tax from goods sold online is contentious, complicated and ongoing. Basically, most states don't require online-only retailers collect sales tax. Only retailers with a physical presence in that state do so. The states may require consumers to pay on their own, but few actually pursue it. So a retailer with stores across the country, like Sears, must collect state sales tax for online orders, while Amazon shoppers get off tax free, with a few exceptions.But as states face looming budget problems and seek new revenue, laws about taxing online sales are being considered. As one of the states in the worst financial shape, California is looking to do just that. And in an effort to delay the measure and give up billions in revenue, Amazon is trying to use whatever leverage it has.

In Texas, where Amazon has a distribution center, the state presented the company with a $269 million tax bill. The retailer is appealing, but has said it would close the facility and lay off the employees. Other states collect taxes based on whether Amazon has affiliates or associates based there. These are sites that advertise Amazon.com and direct traffic to Amazon.

If California, or any other state for that matter, passes a law that requires Amazon to collect taxes because it has affiliates based there, Amazon says it would drop those affiliates (all of which get paid by Amazon and, in turn, pay state taxes).

It's these affiliates that are now in play. Barnes & Noble, Sears and Walmart issued open invitations to Amazon affiliates, rolling out a cyber welcome mat for the many sites that direct traffic to Amazon.com. So if you're searching for a good price on something and are used to following links or banner ads to Amazon, you may have to instead go directly to Amazon.

Perhaps more importantly, the states efforts may lead to us paying taxes on Internet purchases. At least that's what Amazon believes, calling the legislation unconstitutional and a "Trojan horse" in a letter to California Sen. George Runner.