Amazon has informed its marketing affiliates in Hawaii and Rhode Island that their business relationship with the online firm has been ended. Amazon has been dropping its affiliates in states that approve the collection of sales taxes for online transactions.

The game of cat and mouse continues as more states pass legislation to collect taxes on online sales and Amazon moves to drop its affiliates in those states. Late last week Amazon told its marketing affiliates in North Carolina that it was concluding its business relationship with the affiliates. Amazon maintains that the state sales tax procedures are unconstitutional.

In the past Amazon -- and other online merchants -- have argued that they shouldn't be required to pay taxes unless they have nexus (physical operation) in the state. However, Amazon lost a suit in New York State in recent months when a judge ruled that the company's marketing affiliates represented a physical presence in the state and that state taxes should be collected. Amazon has challenged the New York ruling, even as it collects taxes.

The North Carolina, Hawaii, and Rhode Island cases hinge on their respective state legislatures passing legislation paving the way for Amazon affiliates to collect taxes. Marketing affiliates have sprung up across the country as Amazon and other online merchants have grown. In Rhode Island, some $3 million in sales taxes are at stake in pending online sales tax legislation while the figure in North Carolina has been estimated at about $6 million.

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