Funny, we were just discussing this in one of my classes, and now it jumps in to the news.
There are a number of ways to make money online. Advertising is an obvious one, along with having a Web catalog. There are always sites that do on-demand publishing like CafePress where someone can design shirts and link to their store there, and CafePress handles the printing and shipping.
One of the other ways has traditionally been affiliate marketing. This is the type of thing where I can link to someone else's site, and they give me a percentage of any sales generated by you clicking on the link. Many companies, such as Overstock and Amazon have these types of programs.
For example, I have one that I don't push through Amazon Associates here. That link takes you to Amazon, but if you bought something, Amazon would give me a small percentage of it. This is a great program, with very little risk to either side. Amazon makes money, so do I, and my users may buy something they were going to buy anyway through the link.
However, this has also been at the center of a big war. This is not a new war. However, online retailers do not need to charge sales tax to residents of a state in which they do not have a physical presence. So, take NewEgg. They are located in California, so they are required to collect sales tax for anything sold to California residents. However, they do not have a physical location in Alaska, so residents of Alaska do not have to pay sales tax on NewEgg purchases. Of course, companies like WalMart and Best Buy have been fighting this for years, because they feel like it puts them at a disadvantage. State governments don't like this either, but a Supreme Court decision (Quill v. North Dakota) from 1992 said companies without physical locations in a state do not have to charge state sales tax (this ruling was for mail order catalogs).
With many states in dire financial situations, this has become even more of an issue. Some states have made the argument that if a site has affiliates in a state, they now have a physical location in that state. Since I live in New Jersey, this would mean Amazon now has a physical location in New Jersey and must charge sales tax.
To me, this is a very loose interpretation of the law, but a number of states have passed laws to require any companies with affiliates in their state to collect sales tax. Amazon's response has been to just end the program in the states that pass this type of legislation. Amazon terminated the program in Rhode Island, North Carolina, and Colorado, so anyone who lives in those states can not be affiliates. Amazon has been doing battle with New York over this issue, and (to summarize the legal blah blah blah) the state basically now has to prove that having an affiliate in a state is really the same as having a sales representative in a state.
This is now even more newsworthy because Minnesota has a bill in the Senate that would try to collect Internet sales tax. The article linked also states that Minnesota made $20 million in income tax from Amazon Associates, so they are on the brink of losing the program.
In addition, the governor of Illinois today signed into law a bill that did the same thing as other states, and Amazon predictably cut ties with affiliates in those states. I am not sure if the Illinois government really expected anything different, but now Amazon Associates is no longer available in Illinois. Walmart, as a company that already charges sales tax to everyone, is pushing their affiliates program, since this is the only option some people have.
If the government really wants to do this right, maybe the original law needs to be revisited, because it has become a big staring contest.