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Amazon vows to cut more affiliates over state taxes

After severing partnerships with affiliates in several states already, the retail giant threatens to cut ties in even more states over the hot-button issue of tax collection. is threatening to cut ties with affiliates in any states that decide to collect sales tax, CEO Jeff Bezos said yesterday.

"We will continue to drop states who pass those affiliate laws, from the affiliate program," Bezos said at the ShopSmart Shopping Summit in New York, according to Reuters.

The company recently cut ties with affiliates in Illinois and has also done so in Colorado, North Carolina, and Rhode Island. Amazon is threatening to do likewise in California.

As on online company, Amazon itself isn't required to collect taxes in states where the company is not physically located. But many states have been pointing their fingers at Amazon affiliates, or associates. Affiliates aren't necessarily sellers themselves. They are Web site owners and bloggers who link to Amazon on their sites and help drive traffic to Amazon. In return, they collect a commission if a sale is made.

State governments strapped for cash have been arguing that Amazon has an obligation to pay taxes in whatever states the affiliates are located.

Brick-and-mortar stores have naturally supported the taxing of Amazon through its affiliates, complaining that the company otherwise gains an unfair advantage. Amazon, of course, has argued against taxation.

"In the U.S., the Constitution prohibits states from interfering in interstate commerce, and there was a Supreme Court case decades ago that clarified that mail-order companies, because the Internet didn't exist then, would not be required to collect sales tax in states where they didn't have what's called a nexus," Bezos said the event.

Bezos argued that Amazon is no different than big retail chains that don't collect sales tax in states where they don't have a nexus. The CEO said Amazon's point of view is that the collection of taxes among the states should be simplifed, referring to a plan called the Streamlined Sales Tax Initiative.

"The right place to fix this is with federal legislation," Bezos added. "That's where it can be fixed properly."

Below is a video of Bezos' comments. The ones referencing sales tax start around 24 minutes into the video.