The seesaw battle between online retailers and states over sales tax collection swung in favor of the retailers as governors in California and Hawaii used their veto power to block pending legislation to tax sales affiliates in their respective states.

In Hawaii, Governor Linda Lingle vetoed legislation that called for retailers to collect Hawaii's 4% tax while California Governor Arnold Schwarzenegger said he would veto similar legislation if it was passed by the state's legislature.

Various state legislatures have been seeking to raise revenue by taxing online sales, but online retailers, including Amazon and Overstock, have resisted the move. The taxes generally are aimed at retailers with marketing affiliates in the states.

Overstock said it would reverse its earlier decision to drop its affiliates in the Golden State after it learned Governor Schwarzenegger had vowed to veto pending legislation calling for the sales taxes.

Citing Governor Schwarzenegger's commitment to levy no new taxes, Overstock's chairman and CEO Patrick Byrne said, "This is a business-friendly, consumer-friendly, and citizen-friendly stand. We much hope that legislators of other states now toying with the enactment of similar anti-consumer legislation will follow the California lead."

As for Amazon, it said it would reinstate its Hawaii affiliates as long as Governor Lingle's veto remained in force.

The online sales tax legislation has bounced from state to state recently with North Carolina and Rhode Island legislatures recently approving the taxation of online retailers' affiliates. Rhode Island's tax legislation is in force while North Carolina's legislation awaits the governor's signature.

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