Illinois Mulls ‘Amazon Tax’ Despite Shortcomings

Published November 13, 2010

Starving for revenue but unwilling to cut spending, Illinois’ government appears ready to become the latest to require out-of-state online retailers to collect sales and use taxes through the retailers’ in-state affiliates.

Elected officials in three states—New York, Rhode Island, and North Carolina—have already saddled affiliates of online retailers with the special levies known as Amazon taxes, named after the Internet retailer representative of companies targeted by the taxes.

Two other states, Colorado and Oklahoma, have enacted laws requiring retailers to remind customers they owe taxes for their purchases. Although California and Hawaii both passed Amazon taxes, the states’ governors vetoed the bills.

Unmet Promises
John Stephenson, state government affairs manager for the National Taxpayers Union, said, “States that have attempted to tax in-state affiliates of out-of-state online retailers have not netted the promised revenues. Instead, what the policies have done is open the door to litigation and cost the states business activity.”

Stephenson cited a report by the nonpartisan Tax Foundation of Washington, DC, which concluded Rhode Island and North Carolina have not collected any revenues as a result of their Amazon taxes. In addition, the report noted New York and North Carolina have been sued for violations of Constitutional privacy protections.

Stephenson testified before the Illinois House Revenue and Finance Committee in Chicago on September 29 regarding SB 3353, a bill to amend the state tax code to establish a taxable presence for out-of-state online retailers with affiliates in the state. Joined by Illinois Policy Institute Executive Vice President Kristina Rasmussen and dozens of affiliate marketers from Chicago and downstate Illinois, Stephenson explained an Amazon tax would drive away revenues from conventional sources (such as profit and payroll taxes) when the state can least afford it.

‘Hostility to Business’
“Under a misdefined concept of ‘fairness,’ SB 3353 would expand Illinois’ taxing power beyond accepted Constitutional limits and declare this state’s hostility to business, all without yielding much revenue for the state,” Stephenson said in his testimony.

After the hearing, Stephenson said, “Based on the questions I had at the hearing, I’m not certain Committee members understand the costs of pursuing such a problematic tax policy. It’s critically important for affiliate marketers and consumers across Illinois to contact their legislators before the next session to express their concerns about the Amazon tax.”

Rachael Slobodien ([email protected]) is communications manager for the National Taxpayers Union in Alexandria, Virginia. This article originally appeared in The Heartland Institute’s Budget & Tax News.