Updated: September 24, 2012 6:25AM
Anyone who sets out to buy anything is looking for a bargain.
Sometimes, that bargain is a chance to skip out on paying 9.25 percent in Illinois and local sales taxes by shopping online.
Traditional Illinois retailers with brick-and-mortar stores don’t see that as a bargain at all. They think they are at a disadvantage vs. online retailers. In addition to sales taxes, traditional retailers must pay property taxes and business fees even as they see potential sales disappear with the click of a mouse. They also must collect and remit sales taxes on orders placed through their own online sites.
The retailers are supporting a so-called “e-fairness” bill sitting on Gov. Quinn’s desk that would close that gap somewhat by requiring some online business to collect at least the state’s share of sales taxes — 6.25 percent. Quinn should sign the bill, both as a matter of fairness and for the potential of much-needed new revenue for the state.
Under a 1992 U.S. Supreme Court ruling, a state cannot require a business that doesn’t have a presence within the state’s borders to collect sales taxes. The result often is an apparent price advantage for people who buy online.
We say “apparent” advantage because under existing law the sales taxes are due anyway. People are supposed to pay them on their own even if the online retailer doesn’t insist on it. It’s a law that’s widely ignored, and we suspect many Illinoisans don’t even know it exists.
That will change, as Illinois tax forms begin to require filers to state right on the form how much they owe in sales taxes from online purchases. Write down a zero, and you could be facing not just a bill for back taxes but also tax evasion charges.
The bill on Quinn’s desk wouldn’t require all e-tailers to collect and remit sales taxes, but it would do so for sales that go through so-called affiliates that are based in the state. Affiliates are local Web sites that refer online customers to online retailers in exchange for a cut of the revenue. The Illinois Technology Alliance estimates there are 9,000 affiliates operating in the state — businesses that paid $18 million in corporate income taxes alone.
There are plenty of reasons to be concerned about this bill.
If forced to collect sales taxes, the affiliates could shut down or move to other states, reducing overall economic activity here. Big online retailers such as Amazon could sever their relationships with local affiliates, again hurting the local economy. The bottom-line success of similar legislation in other states is heavily debated and has led to lengthy litigation.
Opponents of the e-fairness bill argue that states should wait until a nationwide solution can be worked out that wouldn’t pit one state against another. That argument would be more appealing if there were signs that Congress were ready to do something.
But with no signs of a solution coming from Washington, Illinois can’t afford to do nothing. As it stands now, sales tax revenue legally due to the state is not being collected. Citizens increasingly will face unwelcome bills for back taxes. And businesses with a brick-and-mortar presence in Illinois — and that pay taxes here — are being put at an unfair disadvantage.
The bill automatically becomes law on Friday unless Quinn vetoes it. By either signing the legislation or letting it become law without his signature, Quinn can help traditional retailers.
It might hurt overall economic activity in the short run if some online affiliates disappear before new state-based businesses — suddenly granted a little more breathing space under the law — can replace them. But in the long run, the legislation could prove a bargain.