Consumer electronics retailer Newegg announced Friday that it would no longer comply with a New York state law requiring the collection of online sales tax.

Consumer electronics retailer Newegg announced Friday that it would no longer comply with a New York state law requiring the collection of online sales tax.

"After careful review and consideration, we are pleased to inform you that we have stopped collecting New York sales tax, effective August 21, 2008," Newegg spokesman Bernard Luthi wrote in a Friday e-mail to customers. "This decision was driven by your direct and candid feedback and our continued commitment to you as our valued customers."

New York lawmakers approved a budget package in April that includes a bill requiring online stores like Amazon.com and Newegg to collect sales tax. The state, which has been struggling to with budget issues, stands to take in up to $50 million in unpaid taxes.

Consumers who purchase items online are largely exempt from state taxes they might incur with in-store purchases. Technically, customers are supposed to report online purchases and pay taxes on them, but most people fail to do that.

Newegg complied with the law when it went into effect on June 1.

"While Newegg no longer charges sales tax to its New York customers you may still have an obligation to pay New York State use tax on your purchases," Luthi warned.

In May, Amazon sued the New York State Department of Taxation and Finance (DTF), claiming the bill is unconstitutional.

Though Amazon's headquarters are in Seattle, New York officials argued that the company's affiliate program gives it a presence in New York. The program allows customers with Web sites to put an Amazon icon on their sites that advertise a particular product. If someone clicks through and makes a purchase, the webmaster gets a small cut.

Amazon said in its suit that affiliates "do not solicit or consummate sales on behalf of Amazon and are not authorized to act as Amazon's agents." They operate independently from Amazon, and should not be considered a brick and mortar extension of the site.

The case is still ongoing.