The battle lines between Amazon.com and California have been drawn in the war over collecting sales tax.
Following the passage of California's state budget Wednesday, Amazon.com made it clear it has no intention of collecting sales tax from customers.
What do you think? Should Amazon collect sales tax? Take our Facebook poll.
The company severed one of its legal ties that would have required it to do so and ended relationships with more than 10,000 online affiliates based in the state.
"This legislation is counterproductive and will not cause our retail business to collect sales tax for the state," Paul Misener, Amazon VP of Global Public Policy, said in a statement.
More: Background on the Tax Battle
The affiliates program, which consists of individuals or companies who run websites that refer visitors to Amazon and then get a cut of any resulting sales, is one of several ties to the state that would have forced it to begin collecting taxes under the law.
The Santa Monica based website savings.com has 100 employees. It makes money by driving buyers to a host of national retailers. If a purchase is made, they get a small cut of the action, but no more. They are one of the companies that Amazon has cut ties with.
"This law does nothing but hurt companies like savings.com," according to Thomas Swalla, COO of Savings.com.
Amazon has not decided yet whether to close its Kindle research lab in Cupertino which could allow the state another avenue.
In an email to affiliates, Amazon said it opposed the law calling it "unconstitutional."
Amazon said the law is supported by big-box retailers, "most of which are based outside California, that seek to harm the affiliate advertising programs of their competitors." Amazon claims that similar legislation in other states have led to job losses and "little if any new tax revenue."
The online retailer maintains that the U.S. Supreme Court's 1992 Quill decision prohibits a state from collecting sales tax from a business that does not have a presence there.
Supporters of the tax law say Amazon has had an unfair advantage.
Legislators like Assemblymember Nancy Skinner say the bill is necessary to even the playing field for brick-and-mortar stores who must collect taxes.
"This is a great day for California business. With the signing of e-fairness, California employers are no longer at a competitive disadvantage with out-of-state, online-only companies," Skinner said in a statement.
"Amazon.com and Overstock.com should do the right thing and play by the rules just like our California businesses do. Severing affiliate ties won’t change the fact that under our e-fairness law they will still need to collect sales taxes. We hope that Amazon and Overstock rethink these bullying tactics," she said.
Amazon disagrees, saying it must charge shipping. If they're forced to charge tax on top of that, it actually puts them at a competitive disadvantage.
Passage of the law, which is projected to net $200 million annually, makes California the latest state that has enacted such legislation.
