The Affiliate Marketing Blog first reported that Overstock.com was cutting off New York companies involved in their Affiliate Marketing program, effective 20 May 2008.  This is due to ex-Governor Eliot Spitzer’s policy “…mandating that online retailers collect sales tax on Internet purchases to state residents, even when the retailers have no tax nexus in New York.”

Amazon.com filed a lawsuit challenging the law on 2 May, but the issue won’t be resolved before it goes into effect on 1 June 2008.  The New York Times reported that Amazon.com will keep its New York affiliates and begin collecting taxes.  “Nothing is changing with regard to Amazon’s relationships with Affiliates in New York state,” said Patty Smith, a spokesperson for Amazon.  “We expect to begin collecting sales tax (as the new legislation requires) no later than June 1, 2008.”

Is this the beginning of the free ride for the web?  Will this cripple small businesses and websites focused on affiliate marketing revenues, or is this just a speed bump along the way?