If you’re a member of the Amazon Associates affiliate program and live in the state of North Carolina, today was the day you’ve dreaded: your Amazon Associates account has been officially terminated.

Thanks to legislation that threatens to force Amazon to collect sales tax on purchases made in North Carolina even though Amazon has no physical presence in the state on the basis that its contracts with North Carolina affiliates essentially constitute the legal equivalent of such a presence.

Although the legislation in North Carolina has not yet passed, it is being reported that Amazon affiliates in the state have been sent an email today stating that:

We are writing from the Amazon Associates Program to notify you that your
Associates account has been closed as of June 26, 2009.

This is a direct result of the unconstitutional tax collection scheme expected
to be passed any day now by the North Carolina state legislature (the General
Assembly) and signed by the governor.

Obviously this is bad news for Amazon Associates in North Carolina, especially those who derive significant income from one of the internet’s most popular affiliate programs. And they may soon find that they’re not alone.

With so many state governments in the United States facing massive deficits, similar tax proposals are being considered elsewhere, including in California. Amazon has threatened that if California follows in North Carolina’s footsteps, it will have no choice but to terminate affiliates in that state too.

Proponents of the kinds of tax legislation that Amazon and other online retailers are fighting against say that states lose billions of dollars in revenue annually because the Amazons of the world don’t collect sales. They argue that the real impact on online retailers would be modest and would simply put online retailers on a level playing field with brick and mortar businesses. Amazon has countered that it’s not just about money; it’s about logistics and the Wall Street Journal reports that Amazon “would support a federal effort to streamline state tax laws and give
signatory states the authority to require all sellers to collect taxes,
regardless of whether they are physically present in those states
“.

Who is on the right side of argument? While some sort of internet tax regime in the United States might be reasonable, and should be expected, one can’t help but think that the desperate rush of states to figure out ways to get their hands on additional revenue as they face fiscal disaster might just result in poorly-designed legislation that does more harm than good. Amazon’s North Carolina affiliates have already learned that the hard way.

This is definitely an issue to keep an eye on if you’re involved with online retail in the United States.

Photo credit: Poldavo (Alex) via Flickr.