As states grappling with budget shortfalls try to force Amazon.com to collect sales tax, the online retail giant is systematically retaliating. The latest target is Hawaii. Amazon sent a note to its Hawaii-based affiliates informing them they will no longer earn commissions starting today. The company is cutting off affiliates in states that are trying to classify Amazon as a physical retailer -- required to collect sales tax -- based on its connection to locally based affiliates.

Amazon has also terminated affiliate programs in North Carolina and Rhode Island, and it's sent out a series of warning letters to states, including California (given California's size -- and the large number of Amazon affiliates there -- it will be interesting to see how that situation unfolds). Seattle online diamond retailer Blue Nile has also cut off affiliates in North Carolina and Rhode Island, citing the same tax legislation.

Amazon currently only collects sales tax in a handful of states, mostly where it has a physical presence in the form of offices or warehouses. The online retailer does not want to expand its sales tax collection -- presumably believing it could turn off bargain-hunting shoppers in the recession -- and has calculated that it's more cost-effective to cut off the affiliates and shield itself from the requirement to collect tax.

Here's the Amazon termination email to Hawaii affiliates:

We are writing from the Amazon Associates Program to notify you that your Associates account has been closed as of June 30, 2009. This is a direct result of the unconstitutional tax collection scheme passed by the Hawaii State Legislature with an effective date of July 1. As a result, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com after June 30.

We were forced to take this unfortunate action in anticipation of actual enactment because of the uncertainty and timing of a veto, and the possibility that a veto could be overridden. The governor has until July 15 to veto the bill but, as indicated, the bill has an effective date of July 1.

Please be assured that all qualifying referral fees earned prior to June 30, 2009 will be processed and paid in full in accordance with our regular referral fee schedule. Based on your account closure date of June 30, 2009, any final payments will be paid by September 1, 2009.

In the event that Hawaii’s governor vetoes this tax collection scheme, and that veto is not overridden, or in the event the law eventually is repealed, we would certainly be happy to re-open our Associates program to Hawaii residents.

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