What is the Illinois Internet Sales Tax all about?

The state of Illinois has recently passed legislation that has grave ramifications for the future of internet law, and interstate commerce.

This law requires out-of-state retailers to collect sales tax if they are advertising in Illinois through Illinois based affiliates. Aimed to increase tax revenues for Illinois in this time of economic difficulty for state governments, the bill has met much controversy since its passage. Most importantly, an organization called the Performance Marketing Association (PMA) has recently filed a lawsuit against the state, claiming that the new bill is unconstitutional.

What has happened since the Illinois Internet Sales Tax has been passed?

Since the passage of the Illinois Internet Sales Tax, companies have fled Illinois and have abandoned the affiliates who operate within the state. By doing so, internet companies have been able to abandon having to pay the Illinois Internet Sales Tax to some extent. Due to the sheer availability of affiliates in the different states of the country, the internet service providers have not been affected in an incredibly detrimental way by the law.

However, that is not to say that no one has been affected by the law. Due to the mass exodus of internet companies from wanting to advertise with Illinois based affiliates, many small businesses have felt the sting of losing advertising revenue from the out-of-state internet companies. This has resulted in less money for the Illinois-based businesses, as well as the bankruptcy of some business particularly committed to advertising revenues from out-of-state sources. This may be one reason a U.S. Senator from Illinois is sponsoring federal legislation on the same issue. See Main Street Fairness Act and Internet Sales Taxes.

What is the Illinois Internet Sales Tax lawsuit all about?

According to a ruling of the U.S. Supreme Court called Quill Corp. v. North Dakota, states are not allowed to require a company to pay a sales tax if that company does not have a ‘brick and mortar’ physical presence in the state. The PMA is citing this case in an effort to get the Illinois Internet Sales Tax repealed as an unconstitutional violation of the Quill Corp. ruling.

The lawsuit is also aimed in general to prevent the various states in the United States from implementing similar laws. If the PMA is successful in winning this lawsuit, then the various United States will all be prohibited from taxing out-of-state advertisers who post content on in-state internet sites. If, however, the PMA is unsuccessful and the Illinois Internet Sales Tax is found to be within the confines of constitutional law, then perhaps more and more states will adopt a more restrictive tax policy in regards to internet commerce.