Amazon’s tax woes stem from definition of terms

As the largest retailer on the Web digs in for another fight over collecting sales taxes, we see again just how important the definition of a few common words like “physical presence” can be.

Amazon has terminated its affiliate marketing programs in North Carolina and Rhode Island due to pending laws in those states that could require the online retailer to collect sales taxes, even though it has no employees or operations in either.

Both states are on the verge of following [New York’s lead](/government/article.php/3740056/Amazon+Tax+Lands+in+New+York.htm) and altering their tax code to equate members of Amazon’s Associates program — site owners who advertise Amazon products with links and receive a commission for referral sales — as employees of the company.

Amazon has rewritten its associates operating agreement to bar residents of North Carolina and Rhode Island from participating in the program.

As the trailblazing state that came up with a novel interpretation of a Supreme Court precedent to impose a collection requirement, [New York was met with a lawsuit from Amazon](/government/article.php/3744476/Amazon+Sues+New+York+Over+Internet+Tax.htm). The judge dismissed sided with New York, and Amazon kept its affiliate program in that state, collecting sales taxes under protest. (Amazon is continuing its legal fight against the New York law.)

Overstock took a different approach, and dropped its affiliate program in New York altogether.

Amazon’s move in North Carolina and Rhode Island seems to suggest a growing awareness that the taxation of online affiliate marketing is heading toward a domino effect, as cash-strapped states grow emboldened by the precedent of the New York case and look to close the loophole that has led to significant revenue shortfalls.

This story is often presented as states inventing a new tax. [It is not](http://blog.internetnews.com/kcorbin/2009/04/online-taxes-arent-new-taxes.html).