On Thursday, Illinois Governor Pat Quinn signed into law the Mainstreet Fairness Bill which would require any online retailer with affiliates in the state to collect state sales tax on purchases from Illinois residents. As a result of the bill being signed into law, Amazon notified affiliates in the state that it would end its affiliate program on April 15th. Overstock.com has also threatened to take a similar move and end its affiliates program in Illinois as well.
The state is taking advantage of a 1992 Supreme Court decision which said that retailers don’t have to collect state sales tax on out-of-state shipments unless it has offices within the state. Clearly, Illinois believes that an affiliate of a retailer is equivalent to having such an office.
Many states have been frustrated with the loss of sales tax revenue associated with items purchased online since most online retailers don’t collect it. States typically have a section on income tax forms which asks citizens to voluntarily admit to any online purchases in order to pay the associated sales tax, but few people actually report such purchases. The Illinois Department of Revenue estimates the state loses between $153 million and $170 million a year as a result.
Illinois is in the midst of correcting what some say is the state’s worst financial crisis resulting in $6 billion in unpaid bills and $4 billion in payments the state has missed to fund state pensions. In January, the state began addressing the crisis by passing legislation to increase the state income tax by 67%, the largest such increase in the state’s history. In addition to receiving bi-partisan support from both houses of the Illinois General Assembly, the Mainstreet Fairness Bill also received the support of the Illinois Retail Merchants Association whose business members believe it is unfair that out-of-state businesses have an advantage simply because they are not required to collect a sales tax.
Amazon did leave the door open so that should the current law be changed or modified it would consider resuming the program.
Walmart on the other hand has taking advantage of the crisis faced by Amazon and Overstock.com affiliates by inviting affiliates of those companies to join the Walmart affiliate program instead. Since Walmart maintains retail locations within Illinois it already collects sales tax on purchases sold through its website.
