Overstock.com has joined Amazon in the mass exodus to drop California affiliates and avoid charging sales tax to consumers in that state – all as a result of a new Internet state tax law. Who will be next? And what will happen to California bloggers, podcasters, and other sites who rely on this revenue as income?

While a huge majority the 25,000 affiliates won’t, or can’t afford to, up and leave the state – many will have no choice, especially those with a larger amount of employees.

“This law won’t impact Amazon that much but it is a crisis for website owners who make revenue by placing ads on their websites for thousands of online retailers,” says Rebecca Madigan, executive director of the Performance Marketing Association.

Experts say it could impact 20-30% of small business website revenue – but I think it depends on the industry and blog. Some websites will see their income slashed completely, while others won’t even see a bump. Review sites rely heavily on their affiliate advertising, while entertainment blogs rely mostly on advertising sales and Google Adsense.

And who knows if it will actually help the state of CA? Proponents of the tax claim the new law will raise $317 million in revenue a year. But other states have seen quite the opposite. Those that have implemented similar tax bills have seen the entire thing backfire, says John Henchman of the Tax Foundation. In fact, Rhode Island officials reported that their overall tax collections fell when the affiliate contracts were terminated.

How is this new law impacting you? Do you live in a state with a similar Internet sales tax law? Are you concerned that your state may implement it next?

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