Politicians in the Illinois House passed legislation last week and sent it for signature to Gov. Pat Quinn, that would require out-of-state companies, such as Amzon.com or Overstock.com, to charge its Illinois customers a 6.25 percent sales tax. If signed into law, the tax would add further pain to residents after the 67 percent income tax increase recently enacted by legislators.
Illinois lawmakers say that it’s a good way to raise more money for the state, and that it’s only fair, since in-state retailers are required to collect the tax. They add that it would simply level the playing field among local retailers and those elsewhere. The tax could add up to another $70 million annually to state coffers.
The bill that passed in the House 88-29, would require retailers to collect the tax from customers, and turn it over to the state. Under the current law, customers must voluntarily remit sales tax on Internet purchases to the state. Very few residents do so.
States around the nation have been long interested in the idea, hoping to somehow tax Internet transactions, that to date, have been off limits thanks to a U.S. Supreme Court ruling.
The 1992 court decision, Quill v. North Dakota, ruled that states are prohibited from collecting sales tax made by retailers, who have no physical presence in the state where the sale was made. Although the ruling dealt with a catalog retailer at the time, the law has been widely considered to include Internet sales.
In its decision, the court left the door open for Congress to change the policy, if it later enacted legislation requiring the collection of the tax on a national basis. So far it has not.
Illinois intends to get around federal law by requiring collection of the sales tax if a retailer has so-called in-state “affiliates”, local individuals or companies that advertise products on behalf of a retailer. Affiliates are commonplace throughout the country and on the Internet, and provide sales leads to retailers via links on their web sites.
The bill’s opponents say that if enacted, Amazon.com and others will simply terminate its affiliate contract with those in the state, costing individuals and small businesses millions of dollars in annual affiliate revenues. Critics also argue the bill raises the cost of products to Illinois residents by the amount of the sales tax, which is still prohibited by federal law.
A letter sent by Amazon.com to its affiliate marketers said, “The unfortunate consequences of this legislation on Illinois residents like you were explained to the legislature, including Senate and House leadership, as well as to the governor’s staff. Over a dozen other states have considered essentially identical legislation but have rejected these proposals largely because of the adverse impact on their states’ residents. We thank you for being part of the Amazon Associates Program, and wish you continued success in the future.”
Other states which passed similar laws, including Colorado, New York, Rhode Island and North Carolina, have not seen large increases in sales tax collected, since out-of-state merchants reacted by terminating affiliate contracts. The net affect has been the lost of thousands of jobs, and taxable income reported to the state by the affiliates.
Gov. Quinn has said in the past that he supports the concept, but has not given any information whether he is likely to sign it into law.