States Eye Internet Sales Tax, Vendors Fight Back

It's no secret that the states are strapped for cash.  They've always eyed tax revenues from Internet sales as a money source.  The current taxation scheme requires a nexus for a vendor's physical presence within the state to collect revenues.  Now several states are targeting vendor affiliate programs as providing that nexus.   Some have passed legislation that makes that connection for sales tax collection.  These affiliate programs may take the form of web site referrals from one company to another, or ads provided by a local source to the national vendor.

Amazon is reacting to this by dropping affiliate programs in Rhode Island and North Carolina.  California is considering similar legislation.  The buzz is that other major vendors such as Overstock.com would likely follow suit than be burdened with remote sales tax collection.  This reaction can't be good for states.  While it's doubtful that Amazon would lose customers over a move such as this, their former affiliates' lost business will probably translate into lower tax revenues.  More on this from the Los Angeles Times via the Chicago Tribune.  [MG]