Amazon, Blue Nile sever Web affiliate programs

A box from Amazon.com is pictured on the porch of a house in Golden, Colorado July 23, 2008.

SAN FRANCISCO (Reuters) - Amazon.com has closed its third Internet associates program in a week, in Hawaii, as the online retailer steps up an effort to skirt new sales taxes in several U.S. states.

Amazon's move follows the cancellation of associates programs in North Carolina and Rhode Island, under which the world's top online retailer pays websites -- its associates -- a portion of sales that are channeled to Amazon.com.

In a sign that other Internet retail sites are following Amazon's lead, online jeweler Blue Nile Inc said on Tuesday it had also severed its relationship with affiliates in North Carolina and Rhode Island.

Some U.S. states, searching for new sources of revenue as the recession bites, have passed legislation to tax out-of-state Internet retailers. Amazon pays unaffiliated Web operators a commission if they advertise Amazon on their sites. California, the wealthiest state, is pondering similar legislation.

Those ads often allow consumers to click through from the advertiser's website to that of Amazon.com or BlueNile.com.

In a note published Tuesday, Bernstein analyst Jeffrey Lindsay wrote that Amazon's tactic of cutting out its affiliates rather than collecting sales tax in several states will not materially affect Amazon's revenue.

"This could change, however, and the issue may catch more media attention in the coming weeks, if California chooses to join the sales tax collection drive, and this could be a significant short-term negative for Amazon's stock price," he wrote.

"However, even if sales tax collection were imposed uniformly across the United States, we doubt that it would diminish Amazon's longer term sales growth significantly," he added.

Amazon calls such legislation -- which is currently being mulled also by Connecticut lawmakers -- unconstitutional, arguing that its associates program does not amount to a physical presence in the state and so any sales generated should not be taxed.

It is now fighting in courts a new sales tax law in New York state, where it is collecting tax but has not shuttered its associates program.

Seattle-based Amazon does not disclose how much revenue it derives from its associates nor how much traffic is directed to its site through such programs. Associates can earn up to 15 percent of a product sale, though fees vary by product category, according to an Amazon spokeswoman.

But analysts say such sales are often low margin.

Shares of Amazon were unchanged in early afternoon trade at $83.03 on the Nasdaq.

(Reporting by Alexandria Sage; Editing by Steve Orlofsky)