As Nikki mentioned yesterday, Overstock.com joined Amazon in cutting ties with its California affiliates as a result of the new Internet state tax law. The impact of this for some bloggers is quite large as they wave goodbye to a large portion of their earnings.

Overstock  announced today they are redirecting their ad dollars to California customers by offering them free Club O accounts ($20 value) pre-loaded with $10 in Club O Reward dollars.

Here’s the statement released by Overstocks’s CEO:

“California’s new law that makes out-of-state retailers collect sales tax simply for having business relations with marketing affiliates in those states is unconstitutional,” said O.co CEO Patrick Byrne. “So we have severed relationships with all of our affiliates in California.  Like we’ve done in other states, we have taken the money we would normally pay those affiliates, and are using it to reward our best customers in those states. Any customer in California that has spent more than $300 in the past year will receive a free Club O membership (normally priced at $20) and their membership account will come preloaded with an additional $10 balance. Those qualifying that are already Club O members will also have $10 added to their existing Club O Rewards account and their membership extended for one year.”

Overstock has also cut ties with its affiliates in Arkansas, Connecticut, Illinois, New York, North Carolina, New York and Rhode Island.

What do you think Overstock is trying to say by offering this deal to some of its California residents?