Say you are an affiliate. You have web pages... on these pages you have links to products sold by online retailers like Amazon and others... your commission is based on traffic directed to online retailer sites through your website... these online retailers pay you directly for traffic they receive through your site. This is the simple model.
Today morning, Sacramento wanted to collect sales tax on commission paid by online retailers to affiliates residing in California. (Hawaii, North Carolina and Rhode Island are others imposing this rule). This gives the online retailers two options: absorb the cost of sales tax in these states and pay all its affiliates uniform commissions, or pass the cost on to customers. Both options take away from the basic low-cost structure advantage of online retailers vs. brick-and-mortar.
Of course the online retailers don't like this one bit! They protested by threatening to drop affiliates residing in California. (I believe New York's Internet-sales-tax rules have forced Amazon to start collecting taxes in New York).
Could California really afford to loose out on income tax revenue on lost income by affiliates?
Quickly, this evening, Gov. Arnold Schwarzenegger's office provided assurance that California will not make this a law.
Thankfully, the online retailers won this one... I can still shop online to avoid paying state tax!