Taxes should be paid on on-line purchases
Its popularly assumed that anything bought on-line is exempt from State sales tax. This is not true, its just that nobody pays it and the State can't figure out how to collect it economically for small transactions (<$5K). Sooner or later the states were going to figure out how to collect sales taxes; the roundabout route that California's using is due to the way that US laws work but in principle its no different from paying VAT on purchases in Europe -- just because you buy something from France doesn't mean you don't pay VAT on it.
Amazon's reaction is predicable but I think it won't work. States are hurting for revenue so they're going to be watching very carefully what CA does and as soon as any Constitutional kinks are worked out of it are going to do the same thing.
The explicit tax holiday for Internet commerce is at the Federal level, BTW.