Company sends warning to members of Associates program.

One funny thing about politicians is how they make short-sighted maneuvers that end up costing their constituents in the long run. One example is requiring online merchants to collect sales tax for shipments to their state if the company has any affiliates in the state.

The sad thing is that North Carolina, the latest state set to ponder such a law, can just look at other states to realize this is a mistake. New York passed such a law, which is being fought in court.

The goal is to boost sales tax revenue. But it is offset by a loss in income tax. When an affiliate in North Carolina helps sell a book to someone in Hawaii or Florida, North Carolina gets a cut from the affiliate’s taxes. So North Carolina wins.

But if this law (in its current form attached as a rider to another bill) passes, North Carolina loses. Companies such as Amazon.com (NASDAQ: AMZN) will ditch its affiliates in North Carolina. North Carolina gets less income tax, and Amazon still doesn’t have to remit sale tax because it got rid of its affiliates in the state. It also hurts Amazon’s earnings. Oh, not to mention a handful of North Carolina residents’ livelihoods will be ruined. So it’s a lose-lose-lose situation.

A Domain Name Wire reader in North Carolina forwarded a message Amazon sent to affiliates yesterday:

We regret to inform you that the North Carolina state legislature (the General Assembly) appears ready to enact an unconstitutional tax collection scheme that would leave Amazon.com little choice but to end its relationships with North Carolina-based Associates. You are receiving this e-mail because our records indicate that you are an Amazon Associate and resident of North Carolina.

Please note that this is not an immediate termination notice and you are still a valued participant in the Associates Program. All referral fees earned on qualified traffic will continue to be paid as planned.

But because the new law is drafted to go into effect once enacted – which could happen in the next two weeks – we will have to terminate the participation of all North Carolina residents in the Amazon Associates program on or before that same day. After the termination day, we will no longer pay any referral fees for customers referred to Amazon.com or Endless.com nor will we accept new applications for the Associates program from North Carolina residents.

The unfortunate consequences of this legislation on North Carolina residents like you were explained in detail to key senators and representatives in Raleigh, including the leadership of the Senate, House, and both chambers’ finance committees. Other states, including Maryland, Minnesota, and Tennessee, considered nearly identical schemes, but rejected these proposals largely because of the adverse impact on their states’ residents.

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