I'm disappointed in my home state of Illinois. Again. As if having multiple governors in jail isn't enough, the politicians still in office continue to prove they do not understand nor empathize with ordinary folks.
The recent lame duck session of this state's legislature lacked transparency and is an attempt to push through massive tax hikes. The Americans for Tax Reform site has written some informed posts on the sessions. The majority of voters - small business owners and individual taxpayers - oppose these tax hikes. I love one of the lines in the letter ATR sent to Governor Quinn: "To ignore the will of the voters by ramming a massive tax increase through as the legislature walks out the door is a slap in the face of those who choose to participate in the democratic process." I know I personally feel slapped.
My disappointment about the tax hikes does not begin to approach the feelings I have about the Affiliate Nexus Tax proposal, however. House Bill 3659 would require any out-of-state retailer to collect sales tax on online purchases by Illinois residents, if the retailer has a relationship with an Illinois affiliate. To say the bill is shortsighted is an understatement.
Online retailers with a physical location in Illinois, whether it be a brick-and-mortar stores, warehouses or offices, are required to collect the state sales tax at the time of purchase. Retailers such as Amazon and Overstock do not have to collect Illinois sales tax, as they do not have any physical holdings in the state. This bill proposes that a relationship with an affiliate makes them liable for collection and remitting - overhead, paperwork and headaches. If you were Amazon, what would you do? You'd say screw it, and sever your affiliate relationships. The fact of the matter is, you're still going to sell to Illinois residents. You just won't have to collect sales tax. It's not going to hurt Amazon's bottom line in the least. In fact, Amazon and Overstock have already informed their Illinois affiliates that if this bill passes, they will be terminating the relationships. I know. I've received one of their letters.
I'm not a very active Amazon affiliate through my blog, but I am disappointed this choice is being taken away from me.
In multiple articles, I've read the following: "The point is that someone is supposed to be collecting this tax," said John Patterson, spokesman for state Senate President John Cullerton, who pushed for the change. "All other retailers in Illinois have to collect the sales tax. They're at a competitive disadvantage from online retailers. The motivation is to create some tax fairness among retailers in Illinois."
Wow. Talk about not being able to see the big picture.
Illinois residents will still buy from online retailers. This bill does NOTHING to level the playing field, as they claim. Instead, it hurts the affiliates with legitimate, thriving businesses who employ Illinois residents.
Let me say it again, but louder: ILLINOIS RESIDENTS WILL STILL BUY FROM ONLINE RETAILERS, BUT THOSE RETAILERS WON'T HAVE TO COLLECT USE TAX.
State Senator Dave Syverson, R-Rockford, understands this concept. In an article in the Rockford Register Star, he states, “With this bill passing, Amazon and Overstock, they’ll just cancel their contracts with all the companies like FatWallet.com, and you and I will go directly to Amazon and Overstock,” he said. “Illinois still won’t collect any taxes, but we will lose jobs.”
This affiliate nexus is a stretch. The U.S. Supreme Court has ruled that a retailer that does not have a physical presence in a state cannot be required to collect sales tax for that state. For Illinois to claim that an affiliate relationship - which is basically an advertising relationship - is a physical presence is laughable.
I work for FatWallet Inc. I'm not happy about the discussions we've been having recently. I hate the thought of moving our company out of state, away from the very employees who have helped make us successful. Away from the community we actively support. Seems wrong, doesn't it? But if this bill passes, do you think we can afford to employ these same people when our revenue drops by 30 - 40 percent?
The Chicagoist said it well in the post, "The Bad Math of the 'Amazon Tax'":
What that means is that if out-of-state online retailers continue business as usual, the total increase in use tax collected will be zero. Also, those affiliate dollars earned are taxable, so the state loses out on that income tax as well, resulting in a net loss in revenue. To make matters worse, companies like BradsDeals.com and FatWallet.com, which make most of their income from affiliate marketing, have indicated that if the bill goes through they'll be forced to leave the state, taking their money and jobs with them. Chief executive of Fat Wallet Tim Storm was quoted as saying, "The reality is that as a business owner with 52 employees, we're not going to just get shut down because of a law Illinois passes. Our customers don't care whether we're in the state of Illinois."
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