I know that Neil covered this in passing, but I wanted to highlight this situation. Background: last year Illinois (read, Illinois Democrats, led by Democratic Governor Pat Quinn) decided to try to force Amazon.com to start collecting sales tax on purchases made by Illinois residents*. Arguments were made at the time that this was a futile gesture, given that Amazon.com would simply end its affiliate program; the counter-argument was that Amazon.com would not, and that the end result would be more tax revenue collected.
Well. The law passed in Illinois and Amazon.com promptly ended its Illinois affiliate program. As expected; and as for more tax revenue... well, Chicagoist somewhat tartly noted that use tax (which is where the supposed tax income would have showed up) actually decreased in the second part of 2011. It did not, in other words, provide the $150 million in new revenue that Illinois Democrats promised their electorate... which leads to Chicagoist to go "I told you so." Well, I told you so, too... and let's not forget that this situation is even worse than that, given that the income gotten from affiliate programs is in fact taxable itself. No affiliate program, no taxable income.
Which, again, was entirely predictable. And my sympathies for the states' inability to collect this tax is muted; if they want to enforce collecting state sales tax on online purchases then they could easily enough do that. That they ch0ose not to do that is largely because they don't want to annoy their own voters, who will not be happy to see their online purchases suddenly become more expensive because of those idiots in [insert state capital here]. Alternatively, the states could get together and come up with a consistent state sales tax percentage... which would seriously inconvenience a variety of states who would probably end up having to charge less state sales tax. Or perhaps the states could even contemplate the idea that technological progress will often require a change in existing procedures.
Or they could try doing the same thing over and over again, in the hope of finding a different result. The Democrats seem to like that one.
Moe Lane (crosspost)
*To sum up the issue very briefly: online vendors, as per a Supreme Court decision, are not required to collect and remit state sales tax on purchases unless they have a physical presence in the state in question. Certain - largely Democratic-controlled - state legislatures have attempted to get around this decision by declaring that having an affiliate referral program counts as having a physical presence; online vendors largely react to such legislation by simply shutting down their affiliate programs.
Full disclosure: I am an Amazon.com affiliate for Maryland.