Illinois Passes Internet Sales Tax Law – Loses Business

Illinois has passed an internet sales tax law. As has been seen in other states, the immediate reaction has been businesses announcing they are leaving the state. 

As a general rule, I would just like to say that politicians are idiots. This is born out once again by the decision in Illinois to pass an internet sales tax law. Under it, the state is now demanding online retailer who have no presence in the state, but do have affiliates in it, collect and report sales tax on all purchases by Illinois residents. It sounds like a good way to raise cash up front, but these bills don’t work in the long run.

Illinois is one of the worst run states in the nation. It has a debt problem akin to that in California. The difference is California is the eighth biggest economy in the world with an accompanying population requiring education and public services. Illinois has one major city, Chicago, and that is about it with due respect to the rest of the state. In short, we are talking about a state that is not exactly run well.

The new internet sales tax law is designed to supposedly raise tax revenues from online sales. Despite evidence that this would not happen, keystone cop governor Pat Quinn signed the bill into law. The immediate reaction of internet affiliates was to announce they are leaving the state. One such company, FatWallet.com, is considered one of the best 50 companies in the country. CouponCabin.com is another Illinois business that has announced it will be moving.

The end result of these laws is not to raise tax revenues. It is actually to lose them. Online retailers like Amazon will simply terminate all their affiliates in the state in question. In the case of Illinois, this means the termination of 9,000 plus small businesses. While many of these businesses will move to alternative plans, the Tax Foundation has reported that similar laws in other states have resulted not in an increase in tax revenues, but a decrease of between 25 and 30 percent from the businesses in question. Yes, this is what Illinois needs to cure its budget problems!

The effort of Illinois and other states to tax online retailers is counter productive as we’ve always said. If this is really the way the government wants to go, then a national sales tax is the only way to make it fair. Otherwise, state governments will simply be hurting their own business markets by passing idiotic bills like this one.