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.