The ongoing debate about whether or not to levy sales tax on online purchases got another talking point yesterday, as Amazon.com reacted to one such law in Colorado by completely dropping all of its affiliates in the state.

The Colorado state legislature had enacted the law, which went into effect last week, as an attempt to earn sales tax from Colorado-based businesses using Amazon to connect with buyers around the world. Unlike other states, Colorado gave merchants two options: Either add the sales tax to their goods or send customers an annual accounting of how much each customer owes the state in sales tax.

However, Amazon decided that the new laws were too burdensome and Byzantine, and so decided — just as they did in North Carolina and Rhode Island — to end their relationship with effected affiliates.

In their letter to affiliates to share the bad news, Amazon writes:

The regulations are burdensome and no other state has similar rules. The new regulations do not require online retailers to collect sales tax. Instead, they are clearly intended to increase the compliance burden to a point where online retailers will be induced to “voluntarily” collect Colorado sales tax — a course we won’t take….

There is a right way for Colorado to pursue its revenue goals, but this new law is a wrong way. As we repeatedly communicated to Colorado legislators, including those who sponsored and supported the new law, we are not opposed to collecting sales tax within a constitutionally-permissible system applied even-handedly. The US Supreme Court has defined what would be constitutional, and if Colorado would repeal the current law or follow the constitutional approach to collection, we would welcome the opportunity to reinstate Colorado-based Associates.

According to reports, the move cuts about 4,200 affiliates from Amazon’s roster.

“There are a lot of people who are going to be hurt, and that’s a shame,” Braunstein said.

Not surprisingly, this has turned into a political hot button in Colorado, with Democrats, who backed the bill accusing Amazon of “corporate bullying,” and Republicans telling the Dems “We told you so.”

“It’s exactly what we said would happen,” Republican Assemblyman Mike May said. “They’re going to put people out of work. It’s a game of chicken with people and their jobs, and they lost.”

A similar measure is currently being considered in Virginia, where lawmakers believe they’ll generate millions of dollars in annual tax revenue.

Amid all this finger-pointing, where do you think the fault, if any, lies in this situation?

Amazon cuts off Colo. affiliates because of tax [AP]

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