Amazon warns California against internet sales tax


surf waveWhile Washington considers a uniform national sales tax on internet sales, many struggling states aren't waiting, instead pushing forward their own legislation. One of the major companies that stands to lose business from such a tax, Amazon (NASDAQ: AMZN), has begun to send messages to these states threatening to quit doing business with partners based in these states rather than accept the responsibility for collecting and distributing these taxes.

North Carolina and Hawaii have already received such notices. According to the Wall Street Journal linked above, these states are considering new laws that would required companies that have "online marketing affiliates" in the state to collect and return tax to the state. Amazon has thousands of such affiliates, web-based vendors who display links to Amazon products and receive a commission for each sale.

The need for increased tax revenues will likely inspire many states to join the 23 that have already adopted the Streamlined Sales Tax Project, which would align state tax regulations and set up a streamlined process for the collection and distribution of taxes. Once most or all states are on board, a major hurdle to national legislation requiring the collection of sales taxes on internet sales will be overcome.

In the meantime, I suspect Amazon is swimming against an insurmountable tide. If it drops all its marketing affiliates in each state that proposes this tax, it threatens to compromise one of the cornerstones of its marketing program. And states aren't likely to back off: they are so desperate, they're turning over every rock in search of revenue.

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