piggyLawmakers in New York, North Carolina, Rhode Island, and Hawaii have all introduced legislation in the past month that requires e-commerce companies to collect sales tax if they have marketing affiliates based in those states. This week, Hawaii governor Linda Lingle vetoed her state’s bill. California Governor Arnold Schwarzenegger promised to do the same.

Affiliates are website operators who get a commission for routing buyers from their own site to, say, Amazon. Last Sunday, Amazon notified its affiliates in Rhode Island that the company had cut its ties with them in order to avoid paying current and back taxes.

The Wall Street Journal reports that the move isn’t just bean-counting. It’s a game of chicken against state governments that want sales tax revenue to balance their budgets but don’t want to be seen as killing jobs during a recession.

In May 2008, Overstock.com ended its affiliate programs in New York after then-governor Eliot Spitzer included e-commerce sales tax in the state’s budget.

So far, the merchants and most of their affiliates are winning. According to the Journal, Maryland, Minnesota and Tennessee have already abandoned plans to apply taxes to online sales.

[Photo from Mudflats]


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