Posted on March 9, 2011 by Kevin Getch There’s a battle going on between Amazon and the state of California over what the company calls an unconstitutional attempt to collect sales tax from sellers who don’t have a physical presence in California. Amazon is threatening to cut ties with more than 10,000 of its California-based online affiliates. “If any of these new tax collection schemes were adopted, Amazon would be compelled to end its advertising relationships with well over 10,000 California-based participants in the Amazon ‘Associates Program,'” wrote Paul Misener, Amazon’s vice president for global public policy. While states faced with budget deficits sometimes argue that not paying them a tax gives online companies an unfair advantage of traditional brick and mortar companies. However in 1992, the U.S. Supreme Court ruled that retailers cannot be forced to collect sales tax on out-of-state shipments unless they have offices in those states. This isn’t without precedence, since other states have enacted laws requiring retailers to collect sales tax if they have affiliates based in their state. And this is where I get lost. If the Supreme Court rules against this in 1992, how are states now collecting taxes from out-of-state retailers? Amazon has closed its affiliate programs in Colorado, North Carolina, and Rhode Island over similar disputes, so it’s not like you could accuse them of bluffing. This is another thing that baffles me: I understand Amazon’s distaste for paying taxes across state lines, but aren’t they cutting off their nose to spite their face when they close relationships with affiliates in these states? Any revenue is better than no revenue. Is there something I’m missing here? For the uninitiated, affiliate programs pay people whose websites refer sales to the other company. So, in this instance anytime someone went from Joe Blow’s affiliate banner to Amazon and purchased an item, Joe Blow gets a percentage of the sale.