Amazon.com has been fighting an ongoing battle with states over sales taxes. According to law and several court cases, a business that does not have a physical presence in the state, think mail order catalog, does not have to collect sales tax. Amazon distribution centers are only located in a few states so that most customers pay no sales tax on purchases.
A number of states, including Colorado and North Carolina, have passed laws to force Amazon to pay local sales taxes. In essence, the laws say any affiliate program in the state constitutes a physical presence and therefore, Amazon must pay state sales tax. Rather than fight these laws (which would likely be thrown out at unconstitutional, the law is pretty settled on the subject), Amazon merely fires its affiliates in that state and ignores the issue, thereby throwing their affiliates under the bus. Legally, Amazon is in the right. They should not have to pay sales taxes because of affiliate program. However, by not fighting these bogus laws they are encouraging other states to pass similar laws.
California is the latest state to consider an Amazon sales tax law. And once again, Amazon is threatening to fire its affiliates if the law is passed.
But Amazon's strategy may be backfiring. Now several big retailers with physical presences in every state are stepping into the void. Both Wal-Mart and Barnes and Noble are promoting their affiliate programs in these states. The Wall Street Journal has the details.
Walmart’s Pitch for Amazon Affiliates - Digits - WSJ