The Feds Finally Make a Move on Online Sales Taxes
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.