Tech groups vow to push for repeal of use-tax law signed today

Filed under News, Technology

By Ann Meyer

Gov. Pat Quinn signed into law today an Internet tax act that will require out-of-state online merchants to collect sales tax if they have affiliates in Illinois, but opponents said they will push for the law’s repeal.

Quinn said the law will level the playing field for retail merchants who lose sales to e-commerce sites that don’t collect Illinois sales tax, the Chicago Tribune reported.  The law is designed to reduce the strategic advantage that Amazon.com and other Internet-only merchants have achieved, by expanding the definition of nexus, or physical presence in the state, to include companies using affiliates based here.

“Fair is fair.  Given the position the state governments are in, it levels the playing field,” said Lauren Freedman, president of Chicago-based e-tailing group. “Other companies stepped up to the plate in the early days like QVC and acknowledged they were going to pay sales tax across the board,” Freedman noted.

But others suggest the law is simply misguided.   “You have the retail, brick-and-mortar stores who understandably have an issue with sales tax, but this isn’t going to solve it,” said Brad Wilson, editor in chief of Brad’s Deals. To avoid collecting sales tax, Internet giants will stop doing business with Illinois affiliates, he said.

As a result, instead of generating new tax revenue, the act will push affiliate-based sales out of state, opponents said.  The law is likely to have no effect on Illinois brick-and-mortar retail sales, while disproportionately impacting  the state’s Internet affiliate industry, which has been growing rapidly and generating jobs that pay higher than average, Wilson said.

Major Internet retails such as Amazon.com and Overstock.com “hold all the cards,” Wilson said. The giant Internet merchants will do whatever it takes to preserve sales-tax-free status for their shoppers, he said. “If that means not working with Illinois small businesses, that’s what they’re going to do.”   

In addition, consumers will simply start using coupon affiliates based in other states to continue to avoid paying sales tax for Internet purchases, said Ed Longanecker, executive director of Tech America, which is working with legislators to fight the legislation. What’s more, the law presents a new reason for Internet affiliates to relocate to other states, which would reduce Illinois’ tax revenue and take away jobs, Longanecker said.

“There are dozens of sites that offers coupons and specials that are not based in our state,” Longanecker said.  Affiliates in other states will simply pick up business that is likely to be lost by Coupon Cabin, Brad’s Deals and other Illinois-based affiliates.

In other states that have passed similar legislation, the promised revenue gains never materialized because Internet giants such as Overstock.com and Amazon.com stopped doing business with affiliates in those states, Longanecker said.  The Chicago Tribune reported today that Overstock.com has sent letters to its Illinois affiliates pledging to sever ties with them unless the law is repealed or they move to other states that don’t have restrictive laws.

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