The debate, boiled down simply, is should Amazon be required to collect sales taxes in states and what defines a physical presence?
While this has been an ongoing dispute, it has recently escalated as states look to recover deficits coming out of the recession. One way to do this would be through sales taxes.
In response to these laws, Amazon has threatened, and in some cases, discontinued its affiliate relationships in several states and is reportedly planning on taking legal action against states that have recently passed such legislation.
In the past, Amazon has been protected by a 1992 Supreme Court ruling (Quill Corporation v. North Dakota) that prohibits a state from forcing a business to collect sales tax unless it has physical stores in the state.
While taxpayers in most states are required to pay the tax directly to the government, few actually do.
But now several states are seeking to get around these restrictions by passing laws that expand the definition of physical presence.
The target has been on those e-commerce sites that work with affiliates. Affiliates are partner sites that earn commissions by advertising or linking to an online retailer's merchandise.
Currently, Amazon collects sales tax in five states -- Kansas, Kentucky, New York, North Dakota and Washington -- the only markets where it has stores or offices. But if other local governments have their way, this could soon change.
Here's a state-by- state look at how Amazon is handling the sales tax debacle...
Oklahoma is seeking online businesses to collect and remit sales tax. Currently, online companies without a physical location in the state are exempt for sales tax collection.
Indiana retailers are pressuring lawmakers to require Amazon to start collecting sales tax as a way to level the playing field.
were among the companies that spoke out on the issue.
Amazon has four warehouses in Indiana, but made an agreement with Gov. Mitch Daniels' administration several years ago that the state would not seek sales taxes.
Florida is looking to tax online sales.
The state's Chamber of Commerce said in October that it will make enforcing sales tax on Internet purchases a priority for the annual legislative session in early 2012.
Currently, Florida exempts online merchants from sales tax as long as the merchant has no physical presence in the state.
The goal is to level the playing field for small businesses with brick-and-mortar stores.
Connecticut is pressing Amazon to collect sales taxes in the state.
While the state approved a measure for e-commerce companies to tax purchases made online, Amazon has made no indication that it will concede to the regulation.
Connecticut is pressuring Amazon to pay taxes the state believes it should have collected during the period when the new law was in effect and Amazon still maintained affiliations with Web sites in Connecticut through its Amazon Associates Program. Amazon severed those relationships in June, while the law went into effect in May.
The e-commerce giant sent a note to members of the Amazon Associates Program on June 10: "We opposed this new tax law because it is unconstitutional and counterproductive. It was supported by big-box retailers, most of which are based outside Connecticut, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action."
Amazon reached a deal with Tennessee in October.
The online retailer will begin collecting sales taxes from purchases in the state starting in 2014 in exchange for bringing new jobs into the state.
Amazon recently opened two distribution centers in Tennessee, which employ 1,500 workers. It will add another 2,000 full-time jobs and other season employees, in the near future.
Amazon said in September it will collect sales tax from customers by 2013.
State lawmakers said they would delay the passage of a new law, which would require Internet retailers with physical offices in California to collect sales tax, until September 2012. In exchange, Amazon agreed to stop pursuing a ballot measure to repeal the law and to lobby Congress to pass federal Internet sales-tax legislation.
The law would go into effect in September 2012 if Congress doesn't enact federal legislation by then. If Congress does pass a law, then the California legislation would go into effect in January 2013.
Amazon also intends to build more facilities in California. It also agreed to create 10,000 full-time jobs and hire 25,000 seasonal employees in the state by 2015. Amazon originally said it would hire 7,000 full-time workers.
The concession will also allow many affiliates to get back into business. Amazon previously cut ties with more than 10,000 affiliates in the state on July 1.
Amazon sent an e-mail to former California affiliates on Oct. 4 welcoming them back to the program: "As you may have heard, California Gov. Jerry Brown has signed legislation repealing the law that had forced us to terminate our California Associates," Amazon said. "We are pleased to invite all California Associates whose accounts were closed due to the prior legislation to re-enroll in the Associates program."
Amazon is looking to avoid collecting sales tax in Texas by offering to create 5,000 jobs and invest $300 million in the state.
The e-commerce giant is seeking a four-year reprieve from collecting sales tax through this deal, which would include building a distribution center.
The proposed deal is in the works at the Texas legislature.
But the Alliance for Main Street Fairness opposes this offer, saying Amazon shouldn't receive a special deal.
Earlier in the year, Texas Gov. Rick Perry vetoed a bill that would have forced online retailers to collect sales tax. Perry said the law would have resulted in "unintended consequences."
"My strong preference is to conduct a thorough policy discussion with Texas lawmakers, consumers, retailers and technology experts -- and with other states and even the federal government -- about interstate commerce and the structure of state sales taxes in the 21st century," Perry said in a statement.
Amazon sued the state earlier in the year after lawmakers sent the e-commerce giant a tax bill for $269 million. In retaliation, Amazon said at the time that it would shutter its Irvine-based warehouse and canceled plans to build another warehouse in the state.
Amazon ended its affiliate program in Arkansas, after a bill was passed earlier in the year require out-of-state online retailers to collect sales tax from customers if their annual sales in the state exceed $10,000.
Affiliate contracts will be terminated on July 24, Amazon told its partners in an e-mail.
Colorado lawmakers approved, by an overwhelming majority, to revamp its "Amazon tax" in the hopes of wooing back the e-commerce giant. But the Senate dropped the issue by postponing the bill right before the legislative session ended.
Last year, former Democratic Gov. Bill Ritter, signed a law requiring retailers who don't collect state sales tax to send their customers an annual notice of how much tax the customers should pay Colorado. It also demanded retailers provide the state with a list of customers.
Amazon cut ties with more than 4,000 Colorado affiliates in March 2010 in response to the law.
Amazon posted job openings for a South Carolina facility after the state passed a bill that gives the company a tax exemption.
The warehouse in Lexington County is expected to open this fall. Amazon had previously suspended development on the site in April when the House previously voted against awarding Amazon a tax ememption.
The new law requires Amazon to notify customers that they're responsible for paying sales tax that the company doesn't collect, back to the House. Amazon would begin collecting the tax in January 2016.
In exchange for the exemption, Amazon is required to create 2,000 jobs in the state and a $125 million investment.
Nevada could be the next state at risk of losing ties with Amazon, after a business group launched a $50,000 campaign to change a tax law.
The group of hotel-casinos and small business is looking to make it mandatory for e-commerce companies to collect sales tax when it sells goods in the state.
The coalition said the law wouldn't impose additional taxes but would change the way the taxes are collected. Under the current law, Amazon is not required to collect the sales tax in Nevada, but its customers must fill out tax forms regarding their purchases and send payments to government.
In March 2011, Illinois' governor signed a law that forces online retailers that work with affiliates in the state to collect sales tax on purchases made by residents.
Starting in July, any business with an affiliated presence in Illinois will be required to collect a 6.25% sales tax.
Illinois has estimates that it loses between $153 million and $170 million in sales tax revenue annually due to retailers not collecting the tax.
In response, Amazon made good on its threat of cutting its ties with Illinois affiliates. Its affiliate program will be terminated on April 15.
"We play by the same rules as other retailers, as the national chains collect online only for states where they have physical stores," Paul Misener, Amazon's vice president for public policy, said in a statement.
Vermont's House passed a bill on March 10, 2011, that would require affiliates of online retailers and other Internet businesses that perform more than $10,000 in sales a year to collect a 6% sales tax starting on July 1, 2012.
The new regulation would result in about $30 million of new revenue for the state.
The bill is moving to the Senate for consideration.
Amazon has not said whether or not it will end its partnerships in the state.
Amazon is challenging the legality of a New York law passed in 2008 that requires it to collect taxes based on its affiliates.
While thus far Amazon has stuck it out in New York and abided by the rule, the case is currently in the state appeals court.
New York collected $70 million in sales tax from online retailers in fiscal 2009-2010.
Amazon dumped Hawaii affiliates in 2009 as a battle with the state over sales tax escalated.
On March 8, 2011, a Hawaii bill was passed in the House and transmitted to the Senate. The bill creates a nexus standard for taxing out-of-state business and Internet retailers/affiliate business.
Amazon broke ties with Rhode Island in 2009 after its legislature passed a bill that would require the Internet retailer to begin collecting sales tax.
Amazon no longer has an affiliate program in North Carolina. The company broke ties in June 2009.
On March 10, South Dakota's governor signed a bill that enacted reporting regulations for out-of-state retailers and expanded the definition of nexus to include out-of-state retailers in order to collect taxes on Internet sales.
Massachusetts introduced a bill to protect Main-Street retailers and promote sales tax fairness. The bill would require out-of-state retailers with Massachusetts affiliates to collect and remit sales tax.
New Mexico introduced a bill that would establish an affiliate nexus tax on online purchases.
Missouri lawmakers are renewing the call for an Internet sales tax, filing bills to have the state join the Streamlined Sales and Use Tax Agreement. Representatives are also looking to change and simplify its tax rules requiring Internet companies to charge state and local sales taxes on online purchases.
The House Tax Reform Committee heard public testimony on these bills in February 2011.
If passed, Missouri could gain $210 million in 2012, according to a 2009 University of Tennessee study.
Minnesota lawmakers are considering a bill to require Internet retailers/affiliates to pay tax on online sales.
Since the state is home to two big-box retailers --
-- Janney Capital Markets analyst, David Strasser, foresees few objections.
--Written by Jeanine Poggi in New York.
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