Illinois Considers “Amazon Tax”

January 5, 2011

Word is that Illinois legislators are considering click-through nexus, also known as an “Amazon tax,” pushed by revenue officials who claim that it would raise $150 million a year in revenue. Such laws, nicknamed after their most visible target, require retailers that have contracts with “affiliates”-independent persons within the state who post a link to an out-of-state business on their website and get a share of revenues from the out-of-state business-to collect the state’s sales tax. They exist in New York, Rhode Island, North Carolina, and Colorado.

Last year, we issued a report identifying the trend and demonstrating that states were abandoning “first-generation” version of these taxes, since they failed to produce any revenue and led to extended and unresolved litigation. The “second-generation” versions of these taxes, emphasizing mandatory disclosure of use tax obligations to consumers, are also enmeshed in litigation, with one version struck down in North Carolina on First Amendment grounds.

I spoke too soon: Illinois’s version is a traditional first-generation “Amazon” tax that targets affiliates. Contrary to the claims of supporters, Amazon taxes do not provide easy revenue. In fact, the nation’s first few Amazon taxes have not produced any revenue at all, and there is some evidence of lost revenue. For instance, Rhode Island has seen no additional sales tax revenue from its Amazon tax, and because Amazon reacted by discontinuing its affiliate program, Rhode Islanders are earning less income and paying less income tax. There’s no reason why Illinois wouldn’t suffer the same fate.

Enacting an Amazon tax law also sends a signal of hostility to businesses engaged in interstate commerce, runs the serious risk of retaliation from other states and from affected businesses, and undermines efforts to improve the uniformity of state sales taxes.

More on “Amazon taxes” in other states:

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