Amazon.com isn't the only ecommerce company cutting ties to affiliates over state sales tax legislation. Online diamond and jewelry retailer Blue Nile has ended its North Carolina affiliate program over pending legislation there, TechFlash has learned. Blue Nile's move comes after Amazon took similar actions in North Carolina and Rhode Island. Amazon and Blue Nile are seeking to avoid efforts by states to classify them as a physical retailer -- and require them to pay sales tax -- through their relationship to locally-based affiliate websites.

Affiliates receive a sales commission for linking to products, and play a role in driving business for many ecommerce companies. But Amazon, Blue Nile and others apparently feel the potential tax burden outweighs the benefit of affiliate programs.

Here's the text of the email Blue Nile sent to North Carolina affiliates, obtained by TechFlash:

We are writing to notify you that we have terminated our relationship with all North Carolina affiliates, effective Saturday, June 27th. This is a result of the tax collection legislation currently under consideration by the North Carolina state legislature, which is expected to be passed and signed into law.
 
Blue Nile regrets the need to take this action. As the U.S. Supreme Court’s 1992 Quill decision makes clear, the proposed bill is unconstitutional as it requires sellers with no physical presence in the state to collect sales tax on sales to buyers in that state.
 
Blue Nile has taken this action in advance of the legislation’s implementation because the effective date is unclear. We have enjoyed working with you, and want to assure you that you will earn commissions on any qualified sales through June 27, 2009.
 
We remain hopeful that this unconstitutional legislation will ultimately be rejected, at which point we would be happy to resume working together. Thank you for your participation in the Blue Nile Affiliate Program.

Asked about the email, John Baird, a spokesman for Seattle-based Blue Nile, said the North Carolina legislation "penalizes small businesses as many of the affiliates tend to be." He added: "We totally regret having to do this, but we feel like our hand is forced in this case."

He said Blue Nile is analyzing legislation in other states on a "case by case basis."

Will other ecommerce companies soon join the fray?

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