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IL Affiliate Tax Being Challenged As CA Pass it

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The Performance Marketing Association challenged the constitutionality of the Illinois law taxing products sold by affiliate marketers residing in the state, filing a lawsuit claiming it violates federal law; as the California State Assembly passed theirs.

In a press release issued today, PMA stated that House Bill 3659 signed in to law by the governor of the state victimizes performance marketers, as well as other revenue generating marketing efforts. The suit "aims to protect 9,000 Illinois small businesses," PMA noted.

“HB 3659 is a calculated assault on the burgeoning performance marketing industry and a misguided attempt by the state legislature and Governor Quinn to shore up the state’s budget deficit on the backs of small business,” said Rebecca Madigan, Executive Director of the PMA. “We’re striking back at a law that not only unfairly targets our industry but also would arbitrarily broaden the state’s definition of nexus. That’s a direct violation of the Commerce Clause and flies in the face of decisions already established by the Supreme Court.”

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The tax, popularly termed Amazon or eFairness Tax and similar to others in a number of states, passed the California assembly. Next the bill will go to the state senate. "The state of California could collect more than $1 billion a year by taxing Amazon and other online retailers if a bill approved by the Assembly becomes law," NBC LA reported.

Meanwhile states that had enacted legislation are now vetoing or exempting the tax. Texas Governor Rick Perry vetoed the tax in his state. while the South Carolina senate gave tax exemptions to Amazon which has commercial offices in the state.

As states struggle to meet their budgets these sources of taxes seem like windfalls to the politicians. Last year, Texas sent Amazon a tax bill for $269 million from online sales as Amazon has a warehouse there and was planning to build another - but said it would leave the state before the governor stepped in.

Apart from California, Louisanna is also considering such legislation. Over the past three years, 21 states have considered Amazon taxes, only five have enacted them: Connecticut, Illinois, New York, North Carolina, and Rhode Island.

As the New York Times notes: "A state can compel companies to collect taxes only if they have a physical presence in the state, or a nexus, as the Supreme Court ruled in Quill Corporation v. North Dakota in 1992. Absent a nexus, online retailers and mail-order companies can sell products without collecting the tax.

What many people fail to realize, however, is that the tax is still due. Residents are supposed to self-report what they owe in their annual state tax filing, but most people do not".


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