New York state passed a law in 2008 that forced Amazon.com to collect sales tax on web purchases -- and spawned copycat legislation in other states that caused major headaches for Amazon. The ecommerce giant has been challenging the New York law in court, and today it got friendly assist from a trade group, the Performance Marketing Alliance, which filed an amicus brief in support of Amazon's appeal with the state supreme court.

Amazon largely avoids having to collect sales tax -- doing so primarily in states where it has a physical presence like an office or warehouse. But the New York statute -- dubbed the "Amazon tax" -- sought to change that equation. It established that Amazon and other online retailers have a physical presence in New York through their ties to locally-based marketing affiliates -- and are thus required to collect sales tax just like a brick-and-mortar store.

Marketing affiliates direct web traffic to ecommerce sites in exchange for a cut of any resulting sales. The idea behind the New York law is that these affiliates are acting as sales people. Amazon argues that the affiliate links are simply a form of advertising.

Amazon bowed to New York and started collecting sales tax in the state, while challenging the law in court. As other cash-strapped states looked to New York for inspiration, however, Amazon adopted new hardball tactics. The company threatened to end affiliate programs in states that passed New York-style laws -- removing the basis for any sales tax collection.

Amazon cut off affiliates in a handful of states -- North Carolina, Rhode Island, and Hawaii -- that passed such legislation, though it later reinstated its Hawaii affiliates after the governor vetoed a bill there.

Amazon and Overstock.com have challenged the New York legislation in court. A state judge dismissed Amazon's lawsuit in January, but the company is appealing. The Performance Marketing Alliance, which represents affiliate marketers, filed its brief in support of Amazon with the New York Supreme Court (pdf, 34 pages). In a statement, the group writes:

The brief maintains that the statute harms the public interest by punishing performance marketing, a highly efficient approach to advertising which has allowed thousands to make a living through electronic advertising on the Internet. Further, the revenue stream generated from performance marketing has allowed many small businesses and individuals to accelerate the development of their Web sites, facilitating the more rapid diffusion of free information to the public that is the hallmark of the Internet.

Since it passed in 2008, the New York statute has decimated the income of thousands of affiliate advertisers in the state as several large Internet retailers have terminated all affiliate agreements to avoid imposition of use tax collection responsibilities.

The trade group says the state of New York is expected to file a response by Sept. 16.

Amazon clearly doesn't want to collect sales tax, believing it will be a turnoff to bargain-hunting online shoppers in the recession. But with a variety of states facing budget crunches, it's likely the issue will come up again. In California -- where an "Amazon bill" fizzled after Gov. Arnold Schwarzenegger warned he would veto it -- backers of the legislation are promising another go-around.

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