Illinois’s Amazon Tax: Companies Cry Foul on Main Street Fairness Act

Pat Quinn just signed a bill that forces online retailers like Amazon to pay state sales taxes in states where they have affiliates… and in response Amazon is cutting off its affiliates. What’s this all got to do with affiliates if it’s Amazon that we want the money from? It all has to do with the Commerce Clause.

Yesterday Pat Quinn signed the Main Street Fairness Act; it institutes what’s often referred to as the “Amazon Tax,” which is predicated on the idea that having affiliate sellers in Illinois requires online retailers to collect sales taxes even if they’re not otherwise located here. Amazon immediately started canceling its ties to Illinois affiliates, including Roger Ebert and myself (though I can’t for the life of me remember why I signed up or if I have any money).

The best explanation I’ve read for what it is and why it exists–not just in Illinois but in several other states, with more considering it–comes from Forbes executive editor Janet Novak. Here’s the key to understanding why it revolves around the half-measure of affiliates:

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.

That case is Quill Corp. v. North Dakota. The state argued, in part, that because people used Quill-licensed floppy disks in the state, North Dakota could tax them. The Supreme Court, in an 8-1 decision, held that “‘a few floppy diskettes’ present in a State might constitute some minimal nexus” but not a substantial nexus.

So that’s kind of the question the Amazon tax is meant to answer: what’s a substantial nexus? It’s aimed at affiliates because their presence in the state is substantial–in literal terms, obviously, and in legal terms it’s held up so far in New York.

Over at Chicagoist, Prescott Carlson challenges John Cullerton’s estimate that the state could get $150 million in new revenue because companies can do what Amazon did here and has done in other states: just dump the affiliates. Which obviously reduces income tax revenue.

The other side of the argument that I find most convincing is that it’s good to try to level the playing field between online retailers and brick-and-mortar stores not just because of tax revenues (which is a substantial issue) and jobs but because it’s good having more rather than fewer brick-and-mortar stores… just as a quality of life issue. It’s part of what makes a city a city.

Having said that, the affiliate basis of the Amazon tax inevitably means it’s a half measure, and based on the Commerce Clause, it’s the only measure states have, barring some clever lawyering that hasn’t happened yet.

One thing that does come to mind: 2004 revisions that brought the Jenkins Act into the 21st century, which was passed in 1949 to “facilitate tax collection by requiring out-of-state [cigarette] vendors to report purchases to each customer’s state.” Worth thinking about, since cigarettes are sometimes the canary in the coal mine when it comes to taxes–a hoary metaphor, I know, but it seems resonant in that context.



3 years ago
Posted by starbuck198

I just bought a $1499 Sony Vaio 24" All-in-One Desktop PC for $151.37 and my neighbour snagged a $599 iPad 32GB with 3G for around $72. Both should arrive tomorrow. I'd be a fool to go to expensive retail shops anymore. I sold a 42" HD-TV to a co-worker for $745. But I paid $78.24 for it. I use two sites, both are good.

3 years ago
Posted by krk

The problem with the state level e-Fairness initiatives like in Illinois, Texas, California and elsewhere is that they target remote online retailers who use in-state affiliate marketing partners and naively assume that they will continue the relationship post-legislation. But, as Amazon has demonstrated, they will still avoid collecting sales tax by simply cancelling all affiliate relationships.

The proper venue where this matter should be addressed is Washington by resurrecting the “Sales Tax Fairness and Simplification Act,” which had bi-partisan sponsors but got nowhere in the last congress and its principal sponsor is now retired. But this federal legislation gives the force of law only to states which enacted the “Streamlined Sales Tax Agreement” which 24 states have so far adopted. But Illinois, Texas and California haven’t yet. So, state legislators should focus on this step first.

This will restore a level playing field to brick and mortar retail and bring back jobs and vibrancy to mainstreet retail. Plugging such corrupting loopholes will foster a business ecosystem of free, fair and level playing field to flourish, bring back jobs and vibrancy to main street retail and much needed revenues to the state.

An outfit called Alliance for Main Street Fairness ( has been formed recently to lobby to end the present online sales tax loophole. Big box retail and their commercial real-estate landlords must regard the present competitive handicap from online competitors as an existential threat and crank up their lobbying efforts in Washington.

Here is a good writeup on this issue.
"Every Day's a Tax Holiday: How undersells Best Buy, the Apple store, and almost everybody else."

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