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Should Amazon Pay Sales Taxes?

Last week, Amazon ended its affiliate program in Illinois, after the state signed a law that forces online retailers that work with affiliates in the state to collect sales tax on purchases made by residents.

Affiliates are partner sites that earn commissions by advertising or linking to an online retailer's merchandise.

Amazon has had already terminated affiliate partnerships in Colorado, Rhode Island, Hawaii and North Carolina.

The company also threatened to end relationships with more than 10,000 affiliates in California if the state passes a similar law, and Amazon shuttered its warehouse in Texas after lawmakers sent the retailer a bill for $269 million in unpaid sales tax.

Traditional retailers like Wal-Mart (WMT), Sears (SHLD) and Barnes & Noble (BKS) are lashing out at Amazon, saying it is only fair that the online retailer collects sales tax.

Since these are predominantly brick-and-mortar business that operate physical stores in the states in which they conduct online business, these companies are already collecting sales taxes.

Overall, analysts do not foresee affiliate taxation as having a material impact on online sales. Janney Capital Markets analyst Shawn Milne says affiliates typically account for less than 5% of traffic generation for online retailers.

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