California is in budget hell and contemplating passing an internet sales tax law. In response, Amazon has threatened to terminate its 10,000 plus affiliates if the law passes.

The web is unique in that it allows the little guy to make money fairly easily by teaming up with bigger sites. The concept is known as an affiliate program. Amazon is one of the biggest sites on the web and seems to sell, well, just about everything. To help increase its presence, the company has tens of thousands of affiliates who promote its products for a cut of the action. 

This process is now under attack from tax revenue hungry states. California is the latest to contemplate the passage of an internet sales tax that would force Amazon and companies like it to collect and pay sales tax on sales to anyone in the state. The basis for claiming the jurisdiction to use such a tax is the fact Amazon has affiliates in the state. 

Amazon is fighting this tax movement across the nation. In response to California, the company has sent a letter to the Board of Equalization detailing its position on the proposed tax. The company argues the proposed law is unconstitutional and then taxes a very interesting tack. It threatens to terminate the 10,000 Amazon affiliates in the state if the law is passed. You can read the letter here. 

What are we to make of this? Is it a bluff on the part of Amazon or a statement of serious intention? The answer is unclear. In most states, Amazon has terminated the affiliates when such a law has been passed. That being said, it did not terminate its affiliates in New York under similar circumstances. Terminating 10,000 Californians sending you business is a big move and one that could hurt the bottom line. 

Ultimately, there will most likely be a nation wide internet sales tax. Until that happens, we’ll just have to wait and watch the soap operas play out at the state level.