Illinois legislators passed a revised law last year and it was signed into law on August 26, 2014 after the Illinois Supreme Court struck down the previous “Amazon Tax” law due to the Supremacy Clause, which prohibits states from passing laws that conflict with federal law, as the past law was in conflict with the federal Internet Tax Freedom Act.
The new(er) and current Illinois “Amazon Tax” law circumvents the Commerce Clause issue by asserting a “rebuttable presumption” that any online retailer with affiliates in the state has a physical presence in the state, which the retailer can rebut by “submitting proof” that its Illinois affiliates’ activities during the past year “were not sufficient to meet the nexus standards of the United States Constitution.” (see 35 ILCS 105/1, et seq.)
Furthermore, the new Illinois law, drafted by the Illinois Department of Revenue, applies taxation sales made by out-of-state retailers as a direct result from a coupon or promotional code (see below for express reference to affiliate links) distributed in Illinois by a promoter or affiliate of the retailer.
The Illinois sales tax, which became effective January 1, 2015, includes an applicability to (my emphasis added):
[Retailers] having a contract with a person located in this State under which the person, for a commission or other consideration based upon the sale of tangible personal property by the retailer, directly or indirectly refers potential customers to the retailer by providing to the potential customers a promotional code or other mechanism that allows the retailer to track purchases referred by such persons. Examples of mechanisms that allow the retailer to track purchases referred by such persons include but are not limited to the use of a link on the person’s Internet website, promotional codes distributed through the person’s hand-delivered or mailed material, and promotional codes distributed by the person through radio or other broadcast media.
A couple of thoughts:
- As sales tax goes in Illinois, it applies to tangible personal property, not services. Thus, I do not see this changing any sales tax consequences for affiliated links “sales” of services in/from Illinois, including credit card affiliation links.
- The Illinois Department of Revenue estimated uncollected taxes in 2013 from online purchases from Amazon and other retailers at $212 million. While I certainly do not discount that that is a significant loss of State revenue, I strongly suspect this estimate does NOT include all retail sales from affiliate links originating from Illinois, as the State attempts to qualify such sales as having “minimum contacts” to the State to justify collection. The enforcement of this portion of the taxation leaves me at a loss… and probably the State of Illinois at a bigger loss too!
Readers indicate some Amazon purchases as charging sales tax before the end of the one-month grace period after the January 1, 2015 law effective date. However, my personal test of a purchase remains tax-free (I live in Illinois). It is likely that the taxation was due to buying via a third-party Illinois seller on Amazon. Results may vary.
Disclosure of Material Connection: Some of the links in the post above are “affiliate links.” This means if you click on the link and purchase the item, I will receive an affiliate commission.