Illinois Legislators Chasing a Tax Money Mirage

In their race to raise taxes for a cash-strapped state government, Illinois legislators are pursuing a mirage that other states have already discovered was a dry and dusty disappointment.   MirageYesterday, the General Assembly approved a version of the “Amazon Tax” that would actually reduce tax revenue while harming Illinoisans who make a living through online advertising.

As in other states, this tax scheme will once again backfire to the detriment of Illinois’ entrepreneurs and state tax coffers.  HB 3659 is supposed to force an out-of-state retailer to collect Illinois sales tax if they use in-state ‘affiliates’ – Illinois websites that earn revenue by showing ads for the out-of-state retailer.

But we’ve seen this mirage before, when other states have tried to impose out-of-state tax collection burdens that the Supreme Court has found unconstitutional. In North Carolina and Rhode Island, the mirage disappeared when large online e-retailers who pay affiliate commissions simply canceled their affiliate programs.

The same reaction will undoubtedly happen in Illinois, resulting in no new sales tax for the state. Worse, the lost affiliate commissions would mean that those Illinois small businesses will pay lower state income taxes.

With 9,000 affiliates in Illinois that earned $78M in revenue and paid $2.3M in tax dollars in 2008, we are not talking here about a insignificant community.  Those jobs and the tax dollars they generate for Illinois hang in the balance.

If Prairie State legislators took their heads out of the sand, they’d see Rhode Island’s regrets for pursuing the same mirage in 2009.  Testimonials from Rhode Island affiliates reveal the pain of lost revenue when online retailers abruptly terminated their agreements.

Governor Quinn should veto this legislation the instant it reaches his desk.   Then, Illinois legislators and tax collectors should instead look for ways to collect sales tax that’s already due under current law.

The fastest growing online sales are happening at retailers who also have local stores where shoppers can see merchandise and easily return or exchange items they bought online.  A recent economic study showed that 22 of the top 25 e-retailers (and 82 of the top 150) already have stores in Illinois.  That includes e-retailers where Illinois consumers did a lot of their Christmas shopping, like Apple, Victoria’s Secret, Williams & Sonoma, Eddie Bauer, and LL Bean.

Illinois lawmakers should ensure that these retailers are already collecting sales tax on sales to Illinois residents.  That’s a lot more realistic than pursuing a mirage of new tax revenue where Illinois businesses are left high and dry.

–Steve DelBianco

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