Overstock.com Inc. (OSTK) reversed its decision to drop its California and Hawaii-based marketing affiliates after receiving assurance from the states that their online-tax bills won't become law.

Lawmakers in several states have passed or are preparing to pass legislation that would require companies to collect sales tax if they have marketing affiliates in the state. Affiliate marketers run blogs or Web sites and get a sales commission by featuring links to outside e-commerce sites.

Following in the footsteps of rival Amazon.com Inc. (AMZN), Overstock on Tuesday canceled its relationship with affiliates in California, Hawaii, North Carolina and Rhode Island, before backtracking on California and Hawaii. Amazon has dropped its affiliates in three of the states and warned about California.

Gov. Arnold Schwarzenegger said it made "absolutely no sense" to go back to taxpayers to solve the state's budget deficit, following their recent tax hike, and California should be doing everything it can to keep and create jobs in the state.

"We couldn't be more pleased to have been directly told that the governor is going to focus on balancing the budget via cost cutting, and not by jamming consumers and small businesses with new taxes," Overstock Chairman and Chief Executive Patrick Byrne said.

Hawaii Gov. Linda Lingle also vetoed the online tax bill Wednesday, saying the legislation has immediate and adverse consequences for residents and businesses in Hawaii and places them at a competitive disadvantage. The state legislature has until July 15 to override the governor's veto.

Byrne told Dow Jones Newswires the company will announce shortly plans to reinstate affiliate ties in Hawaii after the governor's office reached out to the company Thursday morning.

An Amazon spokesman wasn't immediately available to comment on the veto's impact on its operations in Hawaii. However, it previously said it intended to restart advertising feeds if the legislation doesn't make it into law.

Rhode Island's new law is effective, while North Carolina's governor has yet to sign the bill. Byrne said he doesn't see any other states on the radar for drafting similar legislation.

The controversy highlights mounting tensions between online retailers and cash-strapped states. Forcing e-commerce sites to collect tax upfront would strip a key advantage they have over traditional retailers, though consumers are technically supposed to pay a so-called use tax for online purchases on their own.

New York passed an Internet-sales-tax law last year, which Overstock and Amazon challenged in court but lost. While they are appealing that ruling, Overstock has dropped its affiliates in the state and Amazon has begun collecting a sales tax in New York.

Overstock shares were off 2.3% at $12.47 in recent trading amid a broader market drop, while Amazon was down 2.4% at $79.66. Year-to-date, the stocks are up 16% and 55%, respectively.

- By Lauren Pollock, Dow Jones Newswires; 212-416-2356; lauren.pollock@dowjones.com