CHICAGO (CN) – A Cook County judge struck down an Illinois law, informally known as the Amazon tax, that legislators hoped would net millions from ever-growing online retailers.
Performance Marketing Association, a Los Angeles-based non-profit, filed suit in July 2011 over Illinois House Bill 3659, also known as the Illinois Affiliate Nexus Tax law or, informally, as the Amazon tax law.
The act aimed to charge an Illinois sales tax against out-of-state Internet retailers by redefining a retailer that maintains “a place of business in this state.”
The expanded definition included any Internet retailer that has contracts with Illinois businesses to display online advertisements that allow Internet users to click through to the retailer’s website. Even without a physical presence in Illinois, retailers with advertising relationships in the state would have to collect and remit Illinois sales tax on all sales made to Illinois consumers.
California, Texas and New York have passed similar laws, which also face challenges from major retailers.
To keep major online retailers like Amazon and Overstock from severing their ties in Illinois, two prominent in-state companies, CouponCabin.com and FatWallet.com, relocated their headquarters across the Illinois border, according to the Chicago Tribune. Meanwhile Amazon severed ties with many of its affiliates in Illinois.
The association’s lawsuit claimed that the Amazon tax law “discriminates against transactions accomplished via online advertising, as compared to other forms of advertising.”
Illinois Circuit Judge Robert Lopez Cepero ruled last week that HB 3659 violated the commerce clause of the U.S. Constitution. A written opinion is pending.
Cepero’s decision “paves the way for Internet marketing affiliates to get back in business in Illinois,” Performance Marketing Association director Rebecca Madigan said in a statement.
CouponCabin’s CEO Scott Kluth said he was “thrilled.”
“This ruling places the responsibility for a solution back where it belongs: in Congress,” Kluth said in a statement. “CouponCabin continues to strongly support a federal solution to the taxation of all online transactions.”
Illinois tax officials meanwhile plan to appeal.
“We need to protect ‘brick and mortar’ stores from an unlevel playing field and we need to recoup some of the estimated $153 million that was not paid by online merchants prior to the law being implemented,” a spokeswoman for the Illinois Department of Revenue told Courthouse News.
In 2011, U.S. Sen. Richard Durbin from Illinois introduced a similar bill on the national level. The Main Street Fairness Act would require remote sellers to remit sales tax to each state that is a party to the Streamlined Sales and Use Tax Agreement.