There are five basic legal forms of business structures found in the United States: C corporations, S corporations, sole proprietorships, partnerships, and Limited Liability Companies (LLCs). In order to understand...
- The Tax Policy Blog
- Illinois Supreme Court Strikes Down "Amazon Tax"
Illinois Supreme Court Strikes Down "Amazon Tax"
The Illinois Supreme Court ruled 6 to 1 today (PDF) that the state's click-through nexus law, or "Amazon tax," is unconstitutional. The law requires an out-of-state retailer to collect sales tax on in-state sales if the retailer has paid referral contracts with in-state affiliates.
Targeted at Amazon (hence then nickname), the law is broad enough that it could be read to sweep all paid-per-click advertising activity. So if you pay for advertising by the view, you have no obligation, but if you pay for advertising by the sale (performance marketing), you do.
Most of the legal challenges to these laws have focused on whether the state power exceeds constitutional limits under the Commerce Clause, but the Illinois Supreme Court focused on this disparity between Internet advertisers and traditional advertisers. Ultimately, the court concluded that because the law requires Internet-based performance marketers to collect tax, but does not require that of traditional performance marketers, it is a discriminatory tax on Internet-based commerce in violation of the federal Internet Tax Freedom Act:
In short, under the Act, performance marketing over the Internet provides the basis for imposing a use tax collection obligation on an out-of-state retailer when a threshold of $10,000 in sales through the clickable link is reached. However, national, or international, performance marketing by an out-of-state retailer which appears in print or on over-the-air broadcasting in Illinois, and which reaches the same dollar threshold, will not trigger an Illinois use tax collection obligation. The relevant provisions of the Act therefore impose a discriminatory tax on electronic commerce within the meaning of the ITFA.
Justice Lloyd Karmeier dissented, criticizing the majority for not addressing the Commerce Clause issue.
We recently filed a brief supporting an appeal of a similar to New York law.
The Illinois case is Performance Marketing Association, Inc. v. Hamer, 2013 IL 114496.
Subscribe to the Tax Foundation Newsletter
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.