Amazon drops Illinois affiliates in fight with states

By Dow Jones Newswires-Wall Street Journal
Posted March 11 at 5:34 a.m. took action in Illinois, as it had threatened to do, to counter a new law aimed at forcing online retailers to collect sales taxes in the state. Hawaii, North Carolina and Rhode Island have enacted similar laws, and California is weighing action. Amazon is also in a court battle with New York over such legislation.

The Illinois law, signed by Gov. Pat Quinn Thursday, requires online retailers that work with affiliates in the state to collect sales taxes on purchases made by Illinois residents and businesses. Amazon responded to the measure by cutting ties to its Illinois-based affiliates, which are blogs and other Web sites that refer traffic to Amazon and get paid commissions if customers make purchases there.

Amazon, which is based in Seattle, has fiercely opposed all efforts to force it to collect sales taxes. “We had opposed this new tax law because it is unconstitutional and counterproductive,” Amazon said in its letter to Illinois affiliates. “We deeply regret that its enactment forces this action.”

The Amazon action has little impact on Illinois consumers. They can continue to buy directly from the company as well as pass through affiliate websites to reach its Web site, without Amazon collecting sales tax. But Amazon’s payments to thosesites will be halted.

Illinois has about 9,000 affiliates, said Rebecca Madigan, director of an affiliate trade group called the Performance Marketing Association. She said the Illinois affiliates generated $611 million in advertising revenue in 2009 and tax revenue of $18 million. She estimates that the state will lose 25 percent to 30 percent of that tax revenue because the affiliates will lose business, cut jobs or move out of the state.

“It has a devastating impact,” Madigan said of the new Illinois law.

Gov. Quinn had argued that the law would “put Illinois-based businesses on a level playing field, protect and create jobs and help us continue to grow in the global marketplace.” Representatives for the Gov. Quinn couldn’t be reached for comment after Amazon’s move.

A 1992 U.S. Supreme Court ruling said that retailers have to collect sales taxes in a state only if they have a substantial physical “nexus” there. The new Illinois law established marketing affiliates as nexuses. Amazon has referred to these affiliates as “advertisers.”

Amazon’s stance against collecting sales tax has drawn the ire of brick-and-mortar retailers, who complain the company has an unfair business advantage over rivals that collect sales taxes. Meanwhile, lawmakers have become more determined to make the online giant collect taxes to help address budget shortfalls that have become big problems for many states.

Over the past two years, officials in several states have tried different tactics to try to compel Amazon and other retailers to collect sales taxes. New York, Hawaii, Rhode Island, North Carolina and now Illinois have passed laws that require online retailers with marketing affiliates in their state to collect sales taxes.

The company is collecting sales tax in New York, while continuing to fight the legislation in court, as well as in Kansas, Kentucky, North Dakota and Washington. Most of the remaining 45 states require customers to report what is known as a “use tax” on out-of-state purchases, but few people actually do.

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  1. HankB March 11 at 6:37 a.m.

    This does nothing to help Illinois brick and mortar establishments but does cut off the stream of revenue to the affiliates which will reduce tax income to the state.

    How does this level the playing field?

  2. CGull March 11 at 6:48 a.m.

    Gov. Quinn had argued that the law would “put Illinois-based businesses on a level playing field, protect and create jobs and help us continue to grow in the global marketplace.”

    Why doesn’t some enterprising reporter ask Quinn to explain exactly what the heck he means by that, considering that Amazon immediately cut ties to its Illinois-based affiliates, thereby nullifying the effect of the law as far as they are concerned.

    The more I see what Quinn is doing, the more I am convinced the man is totally clueless on all levels. He is an honest-to-goodness nincompoop on an almost grand scale!

  3. Scott March 11 at 7:09 a.m.

    Yea but from what I’ve also seen and heard is the want the money as far back as 2004. I can’t remember what I’ve purchased, if anything back then. They’ve graciously said pay the tax and you won’t be penalized but if you forget you will be fined. These so called elected officials are off there rocker. As long as the elected officials never ever get another raise until they fix this mess the put us in, I believe I should move my family somewhere else.

  4. nrb March 11 at 7:33 a.m.

    If Gov. Beady Eyes wants to “put Illinois-based businesses on a level playing field”, he needs to address the spending policies that got us in this position in the first place. You never, ever hear a press release from him talking about cutting spending or, God forbid, asking state workers to do something unthinkable like pay for their own health care.

  5. Tom March 11 at 7:38 a.m.

    Can nothing stop Quinn’s sensasional appetite for more tax revenue? I think he will not be happy until he bankrupts the state and everyone in it.

  6. tom0942 March 11 at 7:43 a.m.

    Another Tax & Spend Democrat.
    Folks, if you voted for Democrats, you deserve this!

  7. Bill March 11 at 7:48 a.m.

    There are other groups that they can become affiliates with besides Amazon. Other businesses are able to function while paying state sales tax. If your business model only works without being able to pay the required taxes then maybe it really isnt viable in the first place.

  8. Dubbu2 March 11 at 7:49 a.m.

    These measures are drawing people away from Illinois. Heck, I’m even considering Indiana. It seems the problem is not with the businesses and people as much as it is with the state gov’t’s spending. Where is all the money going? I have heard nothing about pay freezes, bonus cuts, etc. for state gov’t workers. Instead of raping the people and businesses that are generating revenue in Illinois, why not seek within. It is the PEOPLE and BUSINESSES that are generating the money. If they leave, you have nothing.

    “Brick & Mortar” businesses should consider price-matching the online retailers. If I find that I can purchase an item at a local Wal-mart store for the same price or less (including sales tax) than online, I will be more likely to go to the Wal-Mart store where I can ‘get it now’ rather than deal with waiting and shipping. However, if it’s cheaper online, I won’t mind waiting for it in the mail.

  9. Mike Buenos March 11 at 7:54 a.m.

    Quinn has sure proven to be a big disappointment. So has every politician from both major parties, but Quinn leads the list. Now, with Commonwealth Edison getting a rate increase, it makes Quinn look like the same type of liar as Scott Walker. Promise the people anything, then when in power defer to the big money good ole boys.

  10. Felix The Cat March 11 at 7:59 a.m.

    I can’t believe the kind of softball, no follow-up questions these so-called journalists ask Quinn. The dude has no fear of giving Chewbacca answers to any of these powder-puff “journalists”. He owns them like slaves and he knows it.

  11. Bob March 11 at 8:01 a.m.

    Quinn asked for a 1% income tax increase during the campaign, then worked for a 2.5% increase after he got elected. Quinn supported the “Seniors Ride Free” Program before he was elected, then signed it away in private after the election.

    His next step will be to help pass and support taxing the income of retired seniors as well.

    Quinn is a perfect example of a “tax-and-spend” politician.

    What spending has he proposed cutting?

  12. James March 11 at 8:10 a.m.

    I wish I could sell my house so I could get out of this state!

  13. Jack Hines March 11 at 8:11 a.m.

    Governor Quinn and his boys act like stupidity is a virtue. Raise corporate income tax, now drive out small internet companies. I know Republicans can do stupid things, but this move, that will do zero for brick and mortar business in Illinois, (and he know it) has to be the STUPIDEST. All you Democrats that voted for this clown, you will pay. I’m retired, so it won’t affect me. Maybe he thinks he;ll get enough money to build his high-speed train to nowhere. God save us all. If anyone can make a valid case for this move, please do.

  14. Tim March 11 at 8:51 a.m.

    Nice going Quinn, Madigan, and Cullerton. This will not stop people from buying from Amazon direct with no sales tax. No additional money for you idiots to blow on pork barrel projects.

  15. Tim March 11 at 9:07 a.m.

    Did Quinn ever hear of cutting jobs, pay freezes, hikes in health insurance premiums, increased pension contributions, and reducing outrageous pensions and health benefits for retired state employees? Quinn would not do that. He would not want to offend the overpaid state and retired employees. Did Quinn also ever hear of cutting expenses? Private industry would take such measures. He would not know any of this as he has been a career politician. Wake up Quinn. Face reality. Cut salaries, benefits, pensions, and programs before the state goes bankrupt.

  16. EliminateCIT March 11 at 1:55 pm

    Raising the State corporate income tax will prove to be much more damaging to Illinois consumers and small businesses than anyone in the Capitol had thought.

    Most people believe if they don’t work for a corporation or own shares of stock then corporate income taxes don’t affect them. Nothing could be further from the truth. Every consumer is paying the corporate income tax.

    Look at Illinois where in January, the state’s elected leaders voted to raise the corporate income tax by 46% (from 4.8% to 7.0%). In February, the State’s second largest utility, Ameren, asked for a rate increase that included $41 million to cover the tax increase. So Ameren’s 1 million customers will be seeing a $40 per year increase in their utility bill just from the higher taxation. Expect ComEd, the largest utility in Illinois, to file for a rate increase soon since the 45% increase in any regulated utility’s cost items will flow right through to the consumer. A company must make a profit to continue operating so any tax increase is simply passed along to the consumer.

    Forty dollars a year might not seem like much, but consider what else the income tax increase will affect – the morning cup of coffee, lunches, gasoline, television, cell phone, groceries, clothing, haircuts, insurance, bank products, etc. The providers of each of these services and products will not only see an increase in their taxes, but they’ll also see their utility costs increase. The corporate income tax produces a negative ripple through all businesses that’s ultimately paid for by the consumer. It doesn’t stimulate the economy, it impedes it. Illinois will prove this point at the expense of its citizens.

    Residents of Florida, Kansas, North Dakota, Indiana, North and South Carolina, Oklahoma and some other States are considering the opposite right now as their elected officials have proposed lowering or eliminating their State corporate income tax rates. In Florida, the new Governor is looking for a complete elimination of the 5.5% State corporate income tax. This move would allow for $82 million in State corporate income taxes paid by Florida Power & Light to be passed through to its 4 million residential and 500,000 business customers. And in Kansas where the State leaders are discussing eliminating their 7.05% corporate income tax rate, the 687,000 customers of the largest utility will look to share $17 million in State taxes paid by Westar.

    As price declines roll thru the Florida, Kansas and these other State economies, extra dollars will flow into every household. For each 2.5% of cost savings in a household with a $40,000 budget, this will put an extra $1,000 on the table for spending or savings. Of course the economic gains do not stop there. If households in Florida and Kansas see their costs fall and wealth increase, this will attract population from surrounding states which will lead to economic growth and rising real estate prices. And if companies in Florida and Kansas are generating higher returns from lower input costs, they will be able to compete more effectively and grow versus their neighboring State peers.

    Job creation, lower prices, rising incomes, increased economic activity, better real estate values. Sounds like a great roadmap not just for the States moving to reduce their State corporate income tax, but something that should be looked at in Washington D.C. at the Federal level. Florida Power & Light pays $500 million in Federal corporate income taxes. Imagine the household gains if FP&L’s 4 million residential customers saw their bills fall by an extra $100 per year. Then consider the size of the other prices falling through the entire US economy if our nation’s 35% corporate income tax rate was eliminated.

    Ironically corporations really don’t pay taxes because they pass all of that cost to consumers. Lower corporate income taxes allow a company to be more competitive. Consumers are always searching for lower prices which, because of competition in the market, forces companies to keep their prices as low as possible, but still make a profit. Corporate income tax doesn’t come from the company’s profits, it comes from the consumer.

  17. betty 48 March 11 at 3:29 pm

    I have a question,Eliminate CIT – if the Corporate income tax is eliminated – & the stae needs more $$ since it’s not coming from business, then the Governor just raises income taxes on the middle class, since no one seems to want to tax the wealthy. There goes the extra $$ for spending. & if you really think the gas companies will lower their rates & stop increasing them, you are naive. Just like when sugar & coffee prices were high, Kraft & P&G charges higher prices on their goods – when the comodities went down, did the Companies lower their prices?? NO – eliminating corporate income tax just allows them to pay their people more $$ & goive their top level bigger bonuses. If you think they care about us – think again. Either way we are screwed. The only way is to elect an honest politician who tells the truth & that will never happen. Look waht is going on in Wisconsin – he has lied right down the line.

  18. srdib March 11 at 8:26 pm

    moron. we thought blogo was bad??? this guy is a dictator, almost as crazy as the guv in wi.

  19. adam March 11 at 11:07 pm

    Glad I moved to Utah…

  20. Mike March 13 at 12:11 pm

    Fairness, level playing field, whatever. Even if you stipulate that the idea behind this, sales tax on internet sales, is good, this law is worse than useless. Amazon and Overstock terminated all IL affiliates so the law doesn’t apply to them. Therefore, no sales taxes collected. But at least the jobs and revenue from the affiliates is gone. How is that going to help brick and mortar stores, or anyone?

  21. Darren March 15 at 1:58 pm

    I’m not sure how this crazy law made it past the legislature and governor. It doesn’t instill a lot of confidence in the thinking capabilities of elected officials in the state. Other states enacted similar laws. Amazon, Overstock and other online retailers quickly severed ties with their affiliates in that state. The net result was that the state still is not collecting sales tax directly through the online retailer. So, there is no net benefit to the state at all. In addition, affiliates in the state are now losing a large part of their revenue. Those that remain will layoff employees and be paying less in corporate income tax. Others will move, causing a complete loss of jobs and income tax revenue. That’s a huge net loss for Illinois, as it was in other states that passed similar laws. The concept seems reasonable. States would like to force all retailers to collect the same sales tax from its residents. The problem is how the concept was written into law. The major flaws in the legislation will result in a net loss of jobs and tax income. That’s no level playing field unless Illinois is in the bizzaro universe.

  22. JJK7277 March 24 at 9:03 pm

    This is dumb, irrational, and most of all illogical. But not unusual for Illinois. I have been an Illinois resident all my live. I am 49 years old. Illinois has been driving businesses out of Illinois as far back as I can remember. Which is one of the reasons why they need more revenue for reducing debt. Don’t get me wrong either I am all for paying taxes. Paying Taxes gives me many services I enjoy in my county and my state. A “Win-Win” proposition.

    Now here is a thought, why not lower taxes on actual brick and mortar businesses to level the playing field and perhaps to bring more brick and mortar businesses to Illinois and keeping the online businesses we already have here in Illinois as well as bringing more online businesses to Illinois. And these online businesses that are making money here in Illinois are probably spending most of their money here in Illinois at local brick and mortar businesses as well as strengthening the State’s over all economy and revenue. I know many of times when I need to be out of my house to do my shopping – and really, really need those brick and mortar businesses to go to. I could not imagine my life without them. A “Win-Win” situation.

    Here seems to be the thought of present legislation and what seems to have been for years, let’s raise taxes and over regulate business, and as a consequence when we end up driving business out of Illinois and our state revenue falls we’ll just over regulate and raise Taxes again. A “Lose-Lose” nightmare.

    My father worked for a very large company. He started there when the company was just a simple small business here in Illinois. Later, when he was at the top of middle management, he said that the company sent him yearly to college logic classes to keep him in good shape to do his job that required a great deal of logic, but what he couldn’t logically understand is some of the companies business decisions that he saw his company making that were anything but logical in respect to increasing profit in a “Win-Win” company as when they started out here in Illinois. Winnings for the company as well as winnings for its costumers. He saw corporate policy makers drive away customers, and as the customer left and the companies profits fell, the company just raised it’s prices and rates on its customers, and offered “special deals” to keep getting new customers and weren’t too concerned with keeping them, and on it went and on it goes.

    Also, most things I think can be boiled down to its simplest logic basis. Like supply and demand – when the supply goes down and the demand goes up, then so does the price, and when the supply goes up, and the demand goes down, so does the price. This is completely rational and logical. War is and always has been fought over resources and the few the resources the greater number of wars – food, land, power, religion – oil.

    Anyway, those are just my thoughts. “And if you don’t like the news, go out and make some of your own.”