Illinois Governor Signs Amazon Internet Sales Tax Law
After two-months of fence-sitting, Illinois Governor Pat Quinn today signed controversial legislation requiring Internet retailers like Amazon.com and Overstock.com to collect Illinois’ 6.25% sales tax if they have affiliate sellers in the state. House Bill 3659, the Mainstreet Fairness Bill, was passed by the state’s lame duck legislature in early January. Since then, the bill has been the subject of fierce lobbying by traditional bricks and mortar retailers, who supported it, and Illinois-based Internet-only businesses, who warned that if Quinn didn’t veto it some of them would flee the state. Had Quinn done nothing, the bill would have become law tomorrow without his signature.
Amazon has already said it will terminate its Illinois affiliates, just as it has said it will drop 10,000 California based “associates” if similar legislation pending in that state becomes law. Affiliates are paid a fee by Amazon and other retailers for sales brought in through advertisements and links on the affiliates’ web sites. In an escalating PR war, Wal-Mart, Sears, Best Buy and Barnes & Noble have all issued public invitations to Amazon’s spurned associates to join their affiliate marketing programs instead. Yesterday, the Alliance for Main Street Fairness, a bricks and mortar retailers organization, even announced a new web site to connect affiliates “about to get thrown under the bus” by online-only sellers with retailers who already collect sales taxes on line. Quinn’s office said today that the affiliate matchmaking service had been launched at his request.
In a statement, Scott Kluth, founder and CEO of Chicago-based CouponCabin.com called the Governor’s approval of the bill “deeply disappointing” and said he is “actively exploring” moving his seven year-old business to Indiana. Kluth, a long time resident of Chicago, had previously threatened such a move, telling Forbes, “I can see Indiana form the roof of our business.”
But Quinn, a Democrat, described the law as necessary to put the state’s “main street businesses” on “a level playing field” with online retailers and to protect main street jobs. In a statement issued by Quinn’s office, David Vite, president of the Illinois Retail Merchants Association praised the law as a matter of “fairness for retailers, fairness for the economy but most importantly, fairness for taxpayers.”
Under a 1992 U.S. Supreme Court ruling, only sellers with a physical presence (“nexus” in taxspeak) in a state are required to collect that state’s sales taxes. Just shipping into a state by say, FedEx or UPS, isn’t enough to establish nexus. Consumers buying online still owe “use” (meaning sales) tax to their states, but few bother to pay. The Illinois Department of Revenue figures it loses between $153 million and $170 million in revenue a year from Internet sales on which taxes are due, but not collected.
The new Illinois law is modeled on one adopted by New York in 2008. While Amazon has been challenging (so far unsuccessfully) the constitutionality of that law in court, it has kept its New York affiliates and now collects New York sales tax on purchases shipped to the Empire State. (It also collects for shipments to its home state of Washington, as well as North Dakota, Kansas, and Kentucky.) After Rhode Island and North Carolina adopted copycat “Amazon” laws in 2009, Amazon ended its marketing deals with sites based in those states. It also jettisoned affiliates based in Colorado, which adopted a law requiring Internet sellers who don’t collect sales tax to report sales to the state. (A federal judge has issued a preliminary injunction blocking the Colorado law.) In addition to California, the states of Arizona, Connecticut, Hawaii, Minnesota, Mississippi, and Vermont are all now considering Amazon laws.(Story continues below)
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As Forbes suggested here, Amazon’s days of sales tax collection free selling may be numbered for another reason: Amazon’s growing network of warehouse and fulfillment centers. Last year, the Texas Comptroller sent Amazon a bill for $269 million for four years of back sales taxes, based on an Amazon warehouse there. Amazon insists the warehouse doesn’t give it nexus. But last Month, it told its Texas employees that it would close the warehouse, throwing 110 of them out of work.
CouponCabin.com Comments on Gov. Quinn Signing Internet Tax Bill
Misguided Effort Will Drive Thriving Internet Businesses to Nearby States
CHICAGO, March 10, 2011 /PRNewswire/ -- Illinois Gov. Pat Quinn today signed the so-called Internet tax bill (HB 3659), which requires out-of-state merchants who advertise on websites based in Illinois to collect taxes from all Illinois customers.
The new tax law relates to out-of-state merchants like Amazon.com and Overstock.com that do not have a physical presence in Illinois but have relationships with Illinois advertisers and publishers like CouponCabin.com. Under the provisions of the new law, these merchants are deemed to have a presence (nexus) in Illinois and are therefore required to collect Illinois sales tax.
In response to the Governor's approval of HB 3659, Scott Kluth, CEO of CouponCabin.com, issued the following statement:
"The Governor's approval of HB 3659 is deeply disappointing. As a result, Illinois will lose jobs, many thriving businesses like CouponCabin and other affiliate marketing firms will be forced to move to other states, and most important, this law will not generate the tax revenue Illinois thinks it will collect.
"Those of us who opposed HB 3659 made every effort to persuade the Governor that it is a misguided attempt to bring 'fairness' and new revenue to Illinois by requiring out-of-state merchants who advertise on websites operated in Illinois to collect sales taxes from Illinois customers.
"The reality is that just like other states that approved similar legislation, Illinois will not collect additional tax revenue. Instead, the merchants who would be affected by this law will simply sever their contracts with Illinois affiliate advertisers, as they have done in every other state. The only result of this law is that high-growth businesses like CouponCabin will be driven out of Illinois to maintain their relationships with out-of-state merchants.
"We support efforts to find a solution in Illinois that could correct the damage HB 3659 will cause. We will also continue to work within our industry toward a national solution to these tax issues that would enable our businesses to continue to grow and create more jobs, no matter where they are located.
"In the meantime, CouponCabin is actively exploring moving to Indiana. It's a shame we have to consider leaving our longtime home in Illinois, but we will do what is best for our business."
CouponCabin.com offers online coupon codes, printable coupons, grocery coupons and local coupons without requiring its users to share any personal information. The site has grown from 150 stores and 1,000 offers in 2003 to 3,000+ online stores with more than 150,000 offers. CouponCabin.com offers live chat help and a weekly newsletter highlighting the latest top deals. The average CouponCabin.com shopper spends 80 seconds on the site and saves $19 per order. CouponCabin.com™ shoppers have clicked 208,000,000 coupons and deals since launching in August 2003. For more information, please visit http://www.CouponCabin.com.