Amazon.com has terminated its contracts with approximately 9,000 affiliate Web sites in Illinois after the state passed a law that would require online retailers to collect sales taxes from their customers.
Governor Pat Quinn signed the legislation on Thursday, and the Seattle-based e-commerce site followed through later that day on its threat to drop affiliate Web sites based in the state. The affiliate sites contain links directing users to Amazon and in return collect a portion of the sales revenue.
The law would require all online retailers who contract with an “affiliate” in Illinois to collect sales tax on customer purchases and remit it to the Illinois Department of Revenue. The state currently collects sales tax revenue from the more than 20,000 retailers with physical locations in the state, including online and catalog sales from these vendors.
Amazon has previously dropped affiliates in other states, including Colorado, Hawaii, North Carolina, and Rhode Island, with similar laws and contends that it should not be taxed for online purchases unless it has a physical presence in a state (see Amazon, Overstock Drop Affiliates in Three States and Amazon Dumps Colorado Sites in Response to Tax).
Another online retailer, Overstock.com, has also dropped its affiliates in several states and said Friday that it plans to drop its Illinois affiliates on May 1.
The letter from Amazon, according to one of the dumped sites, LittleTechGirl.com, said, in part, “For well over a decade, the Amazon Associates Program has worked with thousands of Illinois residents. Unfortunately, a new state tax law signed by Governor Quinn compels us to terminate this program for Illinois-based participants. It specifically imposes the collection of taxes from consumers on sales by online retailers - including but not limited to those referred by Illinois-based affiliates like you - even if those retailers have no physical presence in the state.
“We had opposed this new tax law because it is unconstitutional and counterproductive. It was supported by national retailing chains, most of which are based outside Illinois, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that its enactment forces this action.
“As a result of the new law, contracts with all Illinois affiliates of the Amazon Associates Program will be terminated and those Illinois residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, or SmallParts.com.”
A 1992 Supreme Court ruling requires companies to only collect sales taxes from out-of-state residents if they have a physical presence, or nexus, in that state.
Quinn defended the new law against Amazon’s pressure. “Illinois’ main street businesses are critical to ensuring our long-term economic stability, which is why they must be able to compete with every company doing business online in Illinois,” Quinn said in a statement Thursday. “This law will put Illinois-based businesses on a level playing field, protect and create jobs and help us continue to grow in the global marketplace.”
The Illinois Department of Revenue estimates that between $153 million and $170 million in sales tax revenue per year goes uncollected, as individuals and businesses are unaware of or avoid their obligation to pay sales tax on such items. The state is facing a budget deficit of approximately $13 billion.
Several other states are also moving ahead with requiring sales tax collections from online retailers. On Thursday, the Vermont House approved a bill requiring online retailers that realize over $10,000 a year and have in-state business affiliates to collect a 6 percent sales in July of next year, according to the Associated Press. The bill has not yet been approved by the Vermont Senate. In Arkansas, the state Senate approved an online sales tax bill on Thursday, also requiring ou-of-state retailers to collect sales taxes if their sales in the state are over $10,000, according to the AP.
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