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New State Tax Laws Upset Amazon, Overstock

With legislatures in the states of California, North Carolina, Hawaii and Rhode Island readying laws that would require internet retailers to collect taxes from local affiliate advertisers, two of the web's biggest retail aggregators announced this week they will break off business with affiliates in those states — although so far, Amazon has not announced breaking off with California.

"It's painful to have to terminate these relationships with affiliates, simply because they live in states where counterproductive (and likely unconstitutional) laws are being passed," said Patrick Byrne, chairman and ceo of Overstock.com. "However, politicians have to remember that a tax is a price that government charges for a service, and when they raise their prices, we're going to buy less of their services."

The constitutionality Byren referred to involves a U.S. Supreme Court decision requiring a company to have a "physical presence" in a state before it can enforce sales tax collection.

In May 2008, Overstock broke off business ties with more than 3,400 New York advertising affiliates when the state enacted the first of such tax laws. Overstock.com and Amazon each filed suit against New York, both of which are pending.

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