Amazon.com is engaged in game of whack-a-mole again, trying to beat down sales tax legislation popping up in various states. The latest skirmish is taking place in Connecticut, where lawmakers are considering a bill that — following a strategy pursued by other states — would make Amazon collect sales tax on purchases just like a physical retailer. But Amazon is warning it will take swift action to dodge the measure if it passes.

The Connecticut bill defines Amazon as having a physical "nexus" in the state based on its ties to local affiliate websites that link to Amazon products. That "nexus" designation requires Amazon to collect sales tax on purchases.

But Amazon Vice President for Global Public Policy Paul Misener, in a March 15 letter to the Finance, Revenue and Bonding Committee of the Connecticut General Assembly (pdf, 2 pages), indicated that Amazon will sever ties with Connecticut affiliates if the measure passes, as it has done or threatened to do in other states. That action would eliminate the basis for any sales tax collection by Amazon.

Misener writes:

Last year, North Carolina and Rhode Island each enacted a new tax collection scheme functionally identical to the one proposed in Connecticut RB 5481, so Amazon simply ended its advertising relationships with NC- and RI-based participants in the Amazon "Associates program."

Misener didn't mention Colorado, where lawmakers recently passed a different kind of sales tax law. The Colorado law requires that Amazon tell state residents what they owe in sales tax and share that information with the state. While the Colorado law isn't based on the affiliate-nexus argument, Amazon responded by cutting off its Colorado affiliates — sparking criticism from the Colorado governor and others there.

Amazon has a lot at stake in this debate. The online retail giant, which has performed impressively during the recession, does not collect sales tax in most states, giving it a key advantage over brick-and-mortar retailers. (People are required to pay sales tax on their own but rarely do.) But as cash-strapped states seek out new sources of revenue to fill budget holes, many want to spur collection of sales tax online.

Other online sales tax bills are floating around the legislatures of Georgia, Illinois, Maryland, and Virginia. In California, a similar bill failed to make it into the budget package recently but "is expected to reappear this year," according to the Performance Marketing Association, an affiliate trade group that is tracking the issue.

Amazon and Overstock.com are meantime mounting a legal challenge to the New York state law that kicked off this whole wave of affiliate-nexus legislation. (Interestingly, Amazon opted to collect sales tax in New York while the court case plays out.)

Another twist: Rhode Island Attorney General Patrick Lynch, a Democrat running for governor, is calling for a repeal of the state's "Amazon law" that prompted the ecommerce giant to dump its affiliates there.

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