This morning, Amazon Associates in North Carolina are awakening to some bitter news. As of today, their accounts are officially closed. This is anticipation - yes, anticipation, not the actual passage - of a state budget that includes a provision requiring companies with affiliate programs to pay an internet sales tax.

Just a week ago, Amazon sent a warning to NC affiliates that the accounts would be closed if the bill was passed.

The reasoning behind the provision is that affiliates are considered employees and therefore establish a physical presence in NC, which puts them in the "pay an internet sales tax" column.

But oh, if that was really the case. The General Assembly in NC has negotiated tax deals with big companies to lure them to the state. A few years back, Google was the recipient of such a tax deal when they decided to build a new data center in the western part of the state. Apple recently followed suit with a similar deal from the state. So, I guess those commissions on affiliate sales of 99 cent iTunes songs are safe, since Apple will soon have a physical location.

Since I live in North Carolina, I've been privy to efforts to stop the NC affiliate tax. I've watched people of varying political persuasions petition the General Assembly to stop the tax provision.

I've also seen comments on local sites where citizens say that companies with affiliates should pay taxes because other companies and citizens pay taxes. But that thinking is misguided. Affiliates are required to pay taxes on their earnings. The state of North Carolina essentially wants to raise taxes on affiliate sales with this new provision.

Of course, North Carolina politicians are really just shooting themselves in the foot. Many companies will follow Amazon's lead and simply stop their affiliate programs. Thousands of North Carolinians will lose their incomes and will provide less tax income to the state.

There's also a separate provision to tax downloaded music, books, and software, which affects all online businesses involved in those niches. I wonder if Apple's tax deal exempts them from that?

State politicians North Carolina has until July 1 to pass a state budget, and right now it looks like the affiliate tax will very much be included.

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