Amazon's New Fault Line

Amazon.com (Nasdaq: AMZN  ) doesn't want to bring on another West Coast earthquake, but this isn't stopping it from shaking up California.

The leading online retailer is backing a petition for a referendum that would let voters in California decide on a controversial taxing issue that became part of the state's budget last month.

States require that companies with a physical presence collect state sales tax. In a move to overcome budgetary shortfalls, many states have moved to expand the definition to include a website's affiliate marketers.

Amazon's Associates program allows websites of all sizes, bloggers, and even YouTube video hobbyists the opportunity to earn as much as 15% of referrals by linking to the online store's wares.

By assuming that home-based Associates will qualify as giving Amazon a physical California presence, the state is hoping to collect about $200 million annually in state sales tax that website operators aren't tacking on to orders right now.

Unfortunately, that revenue infusion will never come. Amazon, Blue Nile (Nasdaq: NILE  ) , and Overstock.com (Nasdaq: OSTK  ) have reportedly moved to dismiss the affiliate marketers residing in that state.

It's the perfect volley back to the states. Instead of not only failing to collect the state sales tax from Internet retailers, California will now also deal with lower taxes being paid by the tens of thousands of state-based affiliate marketers that are no longer earning money from the sites.

Amazon buckled three years ago when New York passed a similar law, but it's been blowing states off ever since. California joins Connecticut and Arkansas as states where Amazon dismissed its Associates last month.

Forced to leave its Associate behind isn't an easy decision, but it's easier than demanding all of California pay more through out-of-state website operators just because they have affiliate marketers trying to spread the word for a little scratch.

Amazon's loss has been the gain of bricks-and-mortar chains. Barnes & Noble (NYSE: BKS  ) has been reaching out to affiliates in states being booted by Amazon. However, the book superstore lacks the breadth of Amazon's inventory or its e-tailing popularity.

It will be interesting to see where voters line up if they do ultimately have a say here. The tax move makes sense on paper, but it's a lose-lose deal in application.

Should states be able to force Amazon into collecting state sales tax? Share your thoughts in the comment box below.