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Illinois Supreme Court invalidates ‘Amazon tax’

Updated: November 20, 2013 6:10AM

SPRINGFIELD —The state Supreme Court Friday junked a “discriminatory” two-year-old law that had required Amazon and other Internet companies that advertise on affiliated, Illinois-based websites to collect sales taxes on online purchases by consumers, dealing a blow to Gov. Pat Quinn’s administration and stores in shopping centers and malls.

In a major foray by the state high court into taxation on the Internet, justices sided 6-1 in favor of a California trade association that argued the online state tax pushed by the Illinois Retail Merchants Association and enacted by Quinn in 2011 was discriminatory.

Since the advent of the Internet, Illinoisans have been able to make online purchases from out-of-state merchants without paying state sales or use taxes, which led retailers with storefronts to push what has been dubbed “the Amazon tax” to even the score with their online competitors.

This case revolved around a practice in which a person or business with a website makes money from online ads placed by Internet retailers like Amazon. By placing ads on those Illinois-based websites, the out-of-state online retailers would have had to collect state sales taxes under the stricken law.

When the law took effect, several of those affiliate companies that made money off of Amazon and other online retailers’ online ads fled Illinois to neighboring states that didn’t impose the tax.

The Los Angeles-based Performance Marketing Association sued to block the Illinois law, arguing that it was unconstitutional and discriminatory since out-of-state retailers that place ads in non-Internet venues like newspapers or television stations aren’t subjected to the same taxation requirement.

In a majority opinion authored by Justice Anne Burke, the Supreme Court upheld a Cook County Circuit Court judgment, with Burke writing the state law represented a “discriminatory tax on electronic commerce.” The court did not rule on the question of constitutionality.

In a message to its members, the trade association that sued to block the law said it was “ecstatic” by Friday’s ruling.

“There are 9,000 of these affiliate marketers based in Illinois before this law passed. By our estimates, about one-third moved out of state, one-third downsized and one-third went out of business. This ruling allows out of state retailers to immediately reinstate their advertising programs in Illinois, and we’re looking forward to these 9,000 businesses getting back up and running,” said Rebecca Madigan, the trade association’s executive director.

But Quinn’s administration said it was mulling further court action.

“We are reviewing the decision and are considering several options, including further court review of this law or whether amending the law could address the court’s concerns,” said Susan Hofer, a spokeswoman for the state Department of Revenue.

Hofer said several dozen companies have registered and are collecting use tax on behalf of their Illinois customers since the law was enacted, but the agency has “no way of knowing” how much revenues were generated since it doesn’t delineate between online or bricks-and-mortar sales taxes.

The Illinois Retail Merchants Association expressed its displeasure with Friday’s court ruling, saying it underscores the need for Congress to wade into the issue because “brick and mortar retailers continue to be at a substantial disadvantage to their online competitors.

“It’s disappointing that the Illinois Supreme Court did not address the constitutionality of the issue, but rather erred in its conclusion that the act violated the [federal] Internet Tax Freedom Act,” said David Vite, president and CEO of the retailers trade association.

“We haven’t given up. There are other avenues for appeal we hope the state will take,” he said.


Twitter: @davemckinney123

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