Illinois Governor Pat Quinn (D) has signed into law an ‘Amazon.com tax’ requiring all online retailers with a presence in Illinois to collect the state’s use tax on items purchased by Illinois residents and businesses.
Shortly after the bill was signed, Amazon.com—the nation’s largest Internet retailer—announced it was ending its association with thousands of Illinois affiliates, Web site operators whose sites have links that steer people to Amazon.com and collect a commission on resulting sales.
“We play by the same rules as other retailers, as the national chains collect online only for states where they have physical stores,” said Paul Misener, vice president for public policy at Amazon.com, in a statement.
Overstock Exits Too
Amazon announced it would dump its approximately 9,000 Illinois-based affiliates effective April 15. In a letter to its Illinois-based affiliates, Amazon wrote, “We had opposed this new tax law because it is unconstitutional and counterproductive. We deeply regret that its enactment forces this action.”
Overstock.com also announced it would drop its Illinois affiliates, effective May. 1.
Specifically, the new Illinois law states all online retailers (with sales over $10,000 per year) that contract with an “affiliate” in Illinois must collect the state’s use tax on customer purchases and remit the money to the Illinois Department of Revenue. The use tax is a sales tax that purchasers owe on items purchased out of state for use in Illinois. It is the same as the state sales tax: 6.25 percent.
“This law will put Illinois-based businesses on a level playing field,” said Quinn at the bill signing.
This move was supported by the brick-and-mortar retailers in the state but opposed by the largest national Internet sellers, especially Amazon and Overstock.
Warning and Precedent
Illinois’ governor and lawmakers had ample warning thousands of citizens who earn income from these Internet affiliations would likely lose that income. Amazon.com and Overstock.com had both announced they would cut off Illinois affiliates if the bill were to become law. And in several other states with similar laws, such as New York, these and other Internet retailers such as veterinary products distributor Drs. Foster & Smith terminated business dealings with affiliates.
Several Illinois affiliates have announced plans to move to Indiana, where they will still be able to work with Amazon.com and Overstock.com without having to collect or remit a use tax to Illinois.
Cost to State
Amazon.com’s decision to drop Illinois affiliates is likely to cost the state 25 to 30 percent of affiliate tax revenues, which totaled $18 million in 2009, said Rebecca Madigan, director of the Performance Marketing Association, an affiliate trade group.
Illinois’ decision represents “more of the strategy of overtaxing, over-borrowing and overspending that has failed Illinois year after year,” said John Tillman, CEO of the Illinois Policy Institute.
John W. Skorburg ([email protected]) is a lecturer in economics at the University of Illinois at Chicago and associate editor of Budget & Tax News.