Amazon Drops North Carolina SMBs Over Sales Tax ProposalAmazon Drops North Carolina SMBs Over Sales Tax Proposal

Faced with the implementation of a new online state sales tax in North Carolina, Amazon.com has ended partnerships with scores of small business entrepreneurs in the state as the North Carolina legislature prepares to enact new policy on "click-through" transactions.

The online retail giant has been battling several states over sales taxes, generally maintaining they are unconstitutional. Noting that consumers are usually required to pay state taxes on online purchases, lawmakers in several states have taken action to collect the taxes with varying degrees of success. Some states, including New York, have been collecting taxes while others like Maryland, Minnesota, and Tennessee have rejected collecting sales taxes. Some additional states, including New Hampshire, don't collect sales taxes even on bricks-and-mortar retail store purchases.

In criticizing the pending North Carolina online tax, Amazon spokesperson Patty Smith said, "It's not a decision we take lightly. It's unfortunate that given the way the legislation is drafted, we have no choice."

Like most other states, North Carolina is suffering from a shortfall of tax revenue, as the economic meltdown continues to take its toll. The Democratic-controlled legislature has argued that in addition to providing new tax revenue, the measure would level the playing field for all retailers whether they are online entrepreneurs or bricks-and-mortar businesses.

"They (Amazon's associates) need to pay their taxes like everybody else," said Representative Pryor Gibson, a Democrat, according to media reports.

Senate Republican leader Phil Berger responded, "This is just the beginning of the job and small-business losses for North Carolina's economy. Seeing how many holes we can shoot in our foot is not an economic strategy North Carolinians can count on to reduce our record 11.1% unemployment rate."

Some Amazon affiliates have said they will likely leave the state if the taxation legislation goes into effect. On the other side of the issue, many North Carolina small store owners, including many book stores that compete with Amazon, have hailed the pending legislation.

Amazon has challenged a recent New York law that calls for Amazon associates to pay online taxes while it continues to fight proposed legislation in California, maintaining it will end its relationships with its associates in that state.

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