Governor Schwarzenegger terminated California SBX3 17 yesterday, which lead online retailer Overstock.com to reinstate their affiliate program in California today. (He has yet to solve our state's budget woes, however.) This blog is an Amazon.com affiliate, which means that it receives a small sales commission whenever someone makes a purchase on Amazon via a referral link on this site. Inspired by New York, legislators in California were attempting to force out-of-state online retailers to collect state sales tax from their California customers by claiming that the online retailers have a physical presence in the state due to their local affiliates.
It's a clever workaround to what is effectively a federal tax regulation that excuses out-of-state merchants from collecting state and local taxes if they do not have an offline operation where they're doing business. If the law had passed, affiliate members would have been sacrificed because most online retailers value their sales tax-free advantage. Based on the governor's decision, one hopes the "millions of dollars in revenue" created by Overstock, plus the income tax and other ancillary revenue from affiliates in the state outweighs the sales tax revenue that would have been collected from the online retailers. It seems like New York should already have enough data for a case study.
