Illinois is passing an internet sales tax bill to tax online sales to residents in the state. As predicted, affiliate programs are terminating their Illinois affiliates. 

Illinois has joined the brainless movement of politicians to seek tax revenues from the internet. It has passed a new law, known as an “Amazon law”, to take sites that make sales to residents in the state. These sites would be required to collect, report and pay sales tax to the Illinois state tax agency. 

The basis for the tax situation is the same as seen in other states. Most internet retailers have no physical presence in Illinois. Let’s take Amazon.com for an example. The company gets sales from the state, but simply ships products into it. Under well established court law, this means that Illinois can’t force the companies to collect and pay sales tax. It is a slam dunk.

There is a problem for Amazon, however. It and most retailers have affiliate programs where affiliates promote Amazon products through their sites. Like other states, Illinois is arguing that the Amazon affiliates located in the state create jurisdiction and allow the state to tax the online retailers. This argument appears very dubious, but the United States Supreme Court has not rendered a decision yet on the issue and probably will not do so for years. 

How do online retailers react to these new laws? The answer is simple. They terminate their affiliates in the state. As a result, the state collects little or no new taxes from the online sales while at the same time destroying the businesses of the affiliates in their state. Yeah, that’s a winning approach!

The effort of Illinois to apply sales tax to online sales is a dubious one. Look for it to be a trend that continues across the state.