Marketing’s Weekly Dose of the Truth

Ken Magill

About Us

Stupid Gov. Watch: Illinois Passes Idiotic Net Tax

03/15/11

By Ken Magill

What is it about politicians that prevents them from thinking rationally about e-commerce and taxes?

Illinois Gov. Pat Quinn last week signed into law a bill that attempts to force online retailers to collect sales taxes from customers gained through the use of affiliates based in the state.

Illinois is the fourth state to enact a so-called Amazon tax, the other three being New York, North Carolina and Rhode Island.

The Arkansas State Senate passed a similar measure last week and such legislation is reportedly under consideration in South Dakota, Arizona, Hawaii, Connecticut, Minnesota, Vermont, Maine and California.

These laws are a constitutionally dubious run-around the 1992 Quill Corp. V. North Dakota decision in which the Supreme Court ruled that a business must have a physical presence in a state in order for that state to require the business to collect sales taxes.

Predictably, Illinois’ Amazon tax is already creating avoidance behavior.

Overstock.com sent a letter to its marketing affiliates in Illinois immediately after the bill was signed into law, notifying the businesses that it will sever ties with them as of May 1 unless the law is repealed or the affiliates move to another state where no such law exists.

Amazon has also dropped its Illinois-based affiliates.

According to ChicagoBreakingBusiness.com, Scott Kluth, founder and CEO of Chicago-based CouponCabin.com, called the new law “deeply disappointing” and said his company is “actively exploring” moving to Indiana.

According to Rebecca Madigan, director of an affiliate trade group called the Performance Marketing Association, Illinois has 9,000 affiliates who generated $611 million in advertising revenue in 2009 and tax revenue of $18 million. She estimated the state will lose 25 percent to 30 percent of that tax revenue because the affiliates will lose business, cut jobs or move out of the state.

The only positive outcome this law will have is that there will probably be a heck of a lot less spam coming out of the Land of Lincoln. Affiliates are notorious spammers.

Beyond that, the law is a piece of legislative idiocy aimed at pleasing big-box retailers who—no surprise—said they were pleased.

JC Penny and Walgreens both released statements after the signing, applauding Governor Quinn for supporting the new law.

“Governor Quinn has ensured that all Illinois retailers are operating on a level playing field with out-of-state online competitors,” said Mark Wagner, Walgreens president of community management.

Knocked a bunch of local small online businesses out of the game—or at least out of Illinois—is more like it.

Comments

Show: Newest | Oldest

Post a Comment
Your Name:
Subject:
Comments:
Verification:
Please type the letters in the image above

Terms: Feel free to be as big a jerk as you want, but don't attack anyone other than me personally. And don't criticize people or companies other than me anonymously. Got something crappy to say? Say it under your real name. Anonymous potshots and personal attacks aimed at me, however, are fine.

Posted by: Chet Dalzell
Date: 2011-03-15 15:07:04
Subject: Legal Challenges

Are there any judicial efforts underway yet to challenge these affiliate "nexus" definitions? It looks like we'll need a Quill 2 decision here from the Supreme Court. Physical presence defined by an "affiliate," what nonsense -- and a job-killer to boot! If states want to tax their citizens -- tax their own citizens, not those in another state!

Xverify