e-Commerce Takes a Big Hit

While affiliate marketing programs have declined in popularity with online retailers over the past several years, the e-commerce industry in general took a major hit in California today. Both Amazon and Overstock.com terminated their affiliate programs for mom and pop Web sites operating in what was essentially a cottage industry. Governor Jerry Brown, anxious to pass new taxes, which Governor Schwartzeneggar had previously vetoed, implemented a Sales and Use tax on online retailers operating in the state, thereby overriding the federal government's moratorium on Internet taxes.

For years, the e-commerce industry has successfully lobbied to keep Internet taxes at bay, which culminated into the Internet Tax Freedom Act (ITFA) of 1998. However, over the years, many states have manage to erode the legislation with tax amnesty programs that allowed them to circumvent the collection of new types of online taxes. Essentially, the states allowed business owing significant back taxes a credit in exchange for collecting sales taxes on future goods and services sold on the Internet, thereby circumventing federal law.

Now states have effectively broadened their own sales and use tax laws to cover the Internet, with the aid and abetting of brick and mortar lobbying from big box stores. Internet retailers like Amazon and Overstock have declared it unconstitutional and the issue is most likely headed for the Supreme Court. Nine states in all have thus far instituted some form of Internet tax for the Net because they are exempt from the ITFA as a form of political compromise. They, include Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Texas, Washington and Wisconsin.

So, it's only a matter of time before more states follow suit, given their immense budget shortfalls and desperation from a decade of overspending and union demands for worker benefits. Meanwhile, thousands of local Mom and Pops (likely your neighbor) are screwed. As of today, they are out of business in California.