Amazon has been doing battle with states over the collection of sales tax for years.

It has developed a strategy for dealing with states that propose legislation that would force it to collect sales tax as a result of its affiliate relationships: threaten to terminate affiliates in the state if the legislation is passed.

Sure enough, the e-commerce giant has consistently followed through on such threats. The result: Amazon affiliates either have to say goodbye to revenue, or flee to another state. And the states themselves don’t generate any of the revenue they thought they were losing out on in the first place.

When California proposed legislation that would force Amazon to collect sales tax, Amazon didn’t flinch simply because California is a large state that’s home to some 10,000 affiliates. It terminated those affiliates.

But the story doesn’t end there. Instead of going on with business as usual, Amazon cut a deal with the state: California will hold off on enacting its new law, and Amazon will start collecting sales tax on purchases made by California residents by 2013.

With a compromise in place, Amazon is inviting its California affiliates back. In an email, it tells former affiliates, “We are pleased to invite all California Associates whose accounts were
closed due to the prior legislation to re-enroll in the Associates
program.”

Affiliates who come back into the fold won’t have to change their IDs or account settings; Amazon preserved those. All former affiliates need to do is agree to the terms and conditions to re-enroll.

Obviously, this is good news for affiliates who remained in California and earned a substantial portion of their revenue from Amazon. But it’s not clear whether Amazon’s compromise will prove to be good news for anybody but Amazon.

Previous
case law makes it clear: a state cannot force an out-of-state retailer
to collect sales tax from its residents unless it has a presence in the
state.

So why did Amazon budge? There’s one simple reason: even after severing affiliate ties, it was widely publicized that Amazon actually has several wholly-owned subsidiaries in the state. That would making claiming that it didn’t have a presence in California very difficult.

End of story? Not quite.

As part of its deal with California, Amazon will team up with California and other states to push for a federal law that deals with the collection of sales tax at a local level. While it seems unlikely such a law would be a priority today, other online retailers should be wary.

Because it preferred not to sever all of its ties with California, Amazon is now effectively looking to create a system under which all online retailers have to collect sales tax in states in which they don’t have a presence.

In other words, if Amazon can’t have its way, other online retailers shouldn’t be able to either.

That could prove to be bad news for other online retailers, particularly small online retailers. The reason: while a federal law might, in theory, make collecting local sales tax less painful than if there was no federal law in place, it will still represent the creation of new complexity and regulatory red tape for online retailers.

Complexity and regulatory red tape that, under current law, is not necessary. Amazon, of course, is probably the online retailer that has the greatest ability to deal with and absorb the costs of that increased complexity and red tape, highlighting the fact that Amazon’s fight against affiliate taxes was driven far more by its interest in protecting its position than in protecting online retail.

That, of course, is not exactly a surprise, but online retailers that became used to the notion that Amazon was a reliable friend will need to quickly recognize that Amazon is now potentially a powerful foe.

Online retail in the United States is what most of us would consider a ‘mature market’, but that doesn’t mean that its days of double-digit growth are behind it.

According to comScore, online retail spending hit $37.5bn in the second quarter of 2011, up from just under $33bn in the second quarter of 2010. That marks a 14% year-over-year jump.

As has been typical in past years, sales in the second quarter of the year are actually lower than sales in the first quarter, as consumers settle into a post-holiday shopping season pattern.

But this year’s 14% second quarter year-over-year increase is notable for two reasons:

• It’s the largest Q2 increase since 2007, when spending rose 23%. 2007, of course, was the year before the global economy became unhinged. Thanks to the economic downturn, online retail spending actually had negative growth in the fourth quarter of 2008 and the second and third quarters of 2009.
• In absolute dollar terms, online retail sales hit an all-time second quarter high this year.

So what can we glean from this? Clearly, the market for online retail in the United States still has quite a bit of momentum.

Tanking global stock markets could hint that another recession is a possibility. That wouldn’t be welcome news for a global economy that has already been bruised and battered quite a bit in
the past few years.

But even if the global economy slips again,
comScore’s data hints that online retail has plenty of room to grow, and while it isn’t immune from the rest of the economy, the long-term trajectory will help the market snap back and reach greater heights once it rebounds.

Yesterday, California became the latest state to pass an affiliate tax law.

With a single stroke of a pen, California’s governor signed AB 28 1x and may have struck the biggest blow ever to the affiliate business model in the United States.

That’s because California isn’t just home to a large number of
affiliates, it is also widely considered to be the center of the
technology universe.

The impact started to be felt in California even before the law was signed. Hours before, Amazon alerted its California affiliates that their relationship with the online retailer was about to be terminated unless the law was vetoed.

Its email stated, in part:

We oppose this bill because it is unconstitutional and counterproductive. It is supported by big-box retailers, most of which are based outside California, 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.

This isn’t the first time, of course, Amazon has sent such an email. The company has cut ties with affiliates in other large states, including New York and Illinois, over laws similar in nature to California’s.

But Amazon’s termination of California affiliates represents perhaps the most symbolic event yet in the fight against tax laws it believes are unconstitutional.

From San Francisco and Silicon Valley all the way down to Los Angeles and San Diego, the state is home to some of technology’s biggest stalwarts and most prominent upstarts.

Every year, literally thousands of new technology businesses are launched in California. They range from basement startups run by single entrepreneurs to startups with tens of millions of dollars in VC funding.

Thanks to California’s new law, however, all of those businesses will have more limited opportunities to develop affiliate-based business models.

After all, Amazon’s Associates program is one of the most popular affiliate programs out there, and you can be sure that Amazon is just the first in a long line of other affiliate program operators that will be leaving their California affiliates behind in the days to come.

Sadly, just about everyone is a loser here. California, which anticipates that it will raise $200m in additional tax revenue annually from the new law, will learn the hard way, just as other states have, that affiliate taxes simply don’t work.

Affiliate program operators terminate their affiliates, as Amazon has already done, and larger businesses that can’t afford to lose their affiliate program revenue relocate to other states.

This, of course, actually has a negative impact on tax revenue, as the relocating companies take with them their corporate income tax payments, as well as the personal income and sales taxes that employees pay.

There may, however, be a silver lining in all of this. Given the number of technology companies in California and the sway the technology industry has in the state, one has to believe that there will be some sort of backlash against the new law.

Once the state realizes that it isn’t raising any new revenue from the law, and is forced to face the ugly fact that its ever-important technology industry is locked out from participating in major affiliate programs, it may just come to its senses and reverse course.

If it doesn’t, and affiliate tax laws aren’t found to be unconstitutional, this business model may soon be effectively dead in the United States.

Despite the hype, tablets are still most accurately described as a ‘niche‘ market. But that market is expected to grow really, really fast.

That’s according to a study (PDF) conducted by the Online Publishers Association (OPA) and Frank N. Magid Associates, which sees 54m Americans owning or using tablets by early 2012, up from 28m today.

Obviously, that’s good news for Apple, which currently dominates the market with the iPad. But it could also be good news for capable publishers with strong multichannel strategies.

In its survey of nearly 2,500 people, the OPA found that 87% of tablet users use their tablets to access content, making consumption of content and information the “dominant activity” for tablets.

Perhaps more important: of the 93% of tablet owners have downloaded apps, 79% of them have paid for an app, and 26% of all app downloads are paid.

That doesn’t mean that tablets are a paid content panacea, however. According to the OPA, “Consumers want bundled content and payment options for paid content on their tablets, and they prefer a variety of retail channels to buy tablet apps“.

In other words, consumers may not think of the App Store as the be all and end all of tablet content discovery and commerce.

That may provide some validation for the model the Financial Times is employing. The FT, of course, is, for the time being, circumventing the App Store so that it can deliver a true multichannel offering that doesn’t require Steve Jobs to play the role of gatekeeper.

Yet at the same time, we see strategic stupidity on the part of some publishers like the New York Post, which is trying to force consumers using Safari on the iPad to download its app instead.

At the end of the day, there are plenty of reasons for publishers to be hopeful. The tablet population is growing, and as the OPA survey also shows, its demographics are very attractive. But to cash in, publishers will need to have quality content, priced right, and distributed through the right channels. Tablets alone won’t put those in place for them.

The digital advertising rebound may soon have an ace up its sleeve. Congress is on track to retract its ban on internet gambling. The taxes from such a move could send the government as much as $42 billion over the next 10 years. Digital publishers stand to gain a lot from those winnings as well.

Mainly the new legislation would reverse a ban on internet gambling that was passed in 2006, requiring credit card
companies to determine whether a customer’s transaction is with an
online gambling company. If it is, they are expected to reject it. The ban clearly hasn’t worked. For starters, the
regulations implementing the ban only took effect on June 1.

Online gambling is a huge industry. And one that runs deep with American internet users. But most of those companies are based offshore. This law would allow more companies to exist in the U.S. And tax them appropriately.

The new bill would apply mainly to online poker, which is rapidly growing, but other forms of
gambling — like bingo — would also be affected.

According to The New York Times:

“The vote suggests a willingness by Congress to look for unconventional
ways of plugging holes in the budget and comes as struggling states
have also been looking to extract revenue from the gambling industry,
which took a hit as consumers cut back on travel and entertainment
during the recession but continues to reap billions of dollars in annual profits.”

Opening the door to more online gambling businesses is likely to bring in revenue for many different entities. Gaming publishing group iGaming Business, recently released a
report estimating that the online casino industry is expected to
increase by around 80% by 2014. Rachel Church-Sanders, author of the
report, tells Betatastic (“your guide to online gambling”):

“Each online casino operator is looking
to participate in a sector becoming more socially acceptable,
benefiting from a liberalised regulatory structure in some markets, and
enjoying very substantial growth across many key demographics including
those that have been hard to reach through other types of gaming or
betting such as women.”

Of course, gaming sites already advertise online. But that market will grow as restrictions on the actual business happening on those sites lift.

Already, online advertising has benefitted from its low price point. Advertisers looking to save money have shifted their budgets into digital — which is still growing — as traditional ad markets have shriiveled.

Last week, AOL opened its display product to political ads, in response to looser restraints on those ads. And advertisers are also likely to receive more gambling ads if this bill goes into effect.

According to eMarketer, online advertising spend is on track to handle rapid growth, and hit $61.8 billion worldwide this year. The spend grew 2% to $55.2 billion in 2009. By 2014, it is expected to hit $96.8
billion worldwide, growing at an 11.9% annuallly. 

Allowing more advertising content online will help grow that pie. And if online gaming makes its way past Congress, all sorts of other entities are set to profit. Tax collectors and online publishers included.