The Feds Finally Make a Move on Online Sales Taxes

March 26, 2013 | Posted By: Bryan Marsden | Categorized in: FatWallet

Almost two years ago, FatWallet was forced to move out of Illinois due to the state government passing a “affiliate nexus tax” law (also known as the Amazon tax). The law stated that a company with an affiliate agreement in Illinois would be required to collect, and report taxes for any online sales from that state. As predicted, most of the merchants balked at this, and said it violated interstate commerce laws, and that it was unconstitutional. They also threatened to end any affiliate agreements with their partners in Illinois.

At the time, Illinois had more affiliates than any other state in the country. The fall out for any affiliate in Illinois was enormous. Several merchants that included Amazon, Newegg, and Overstock flat out told their affiliate partners that they would drop them if the law was passed. This would have cost those affiliate partners around 40% of their business revenue, which gave them the choice of moving to another state, going out of business, or accepting 40% loss in revenues.

FatWallet, Brads Deals, and a couple of other companies went to Springfield to make their case that the law would not only cost hundreds of jobs, but it also wouldn’t bring in any additional revenue. Tim Storm argued that the merchants would simply sever relationships with affiliates in the state, and if they wanted to get sales tax revenue from the online merchants it would have to be addressed on a federal level.

That prediction was spot on. Many of the affiliates closed down or left the state, including FatWallet who moved five miles across the border to Wisconsin. Similarly, the merchants made good on their threat to pull out of the state as well. Instead of gaining additional tax revenue from the bill, it didn’t generate any revenue, and it cost Illinois hundreds of jobs and thousands in business tax revenue.

So where do we sit today? Well it appears that states are finally addressing the issue on a national level. The U.S. Senate just passed an online sales tax bill by a vote of 75-24 in support of this issue. Although the House of Representatives still needs to vote on it, the proposed federal law holds promise that this issue will finally be resolved.

For a more in-depth look at FatWallet's move to Wisconsin, check out our documentary on Youtube:

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  • Comments
    March 27, 2013 | Posted By: Sonofspam
    Now is the time to write and call your senators and let them know you DO NOT support this move to tax you more, especially in this lousy economy. Lower incomes, who use interwebs purchases as a way to save some money, with a savings on sales tax being one big strategy, will be hurt the most. As usual, those who can least afford it will be footing a huge portion of the taxes as a result. Just imagine, you find a great deal on FW that will save you $25 on a purchase, but your savings will disappear after you pay sales tax. This will also hurt businesses, many of them small, that can operate on the interweb against bigger businesses because of the lower costs vs. a B&M store, and the sales tax savings for their customers as an added bonus. After this type of tax is added to interweb purchases, jobs will be lost. There are no winners as customers will buy less from interweb sites if they have to pay sales tax. Only losers.
    March 27, 2013 | Posted By: eoniverse
    Without having reviewed the legislation it makes me wonder if there is a loophole that will force some of the large online businesses offshore to maintain a tax free status while still selling over the internet. Loosing more jobs also. Thinking things through has never been the strong suit of Government given all the influence peddling going on.
    March 27, 2013 | Posted By: ViveLeRoi
    If you think about it, there already is a tax on online retailers called "shipping". This "tax" is one that actually helps an economy because the money doesn't directly go to the government but rather to the shipping companies that pay taxes on their profits and also to the employees who pay taxes and then purchase other goods and services and finally to the suppliers of the shippers who sell the shipper the products (fuel, packaging, storage space, cars, trucks etc.). To tax internet sales would decrease online sales. Depending upon the amount of tax, there could be a far greater harm done to the tax bases of the states than if they were to simply leave the status quo. I realize that lobbying by the large B&M retailers lies behind a lot of this, but I am hopeful that our elected officials will gain some common sense and realize that they could do far more harm than good on this front.
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