Today, Illinois became the forth state to impose an affiliate nexus Internet tax. After some deliberation, Gov. Pat Quinn continued his streak of enacting economically damaging tax measures by signing House Bill 3659 into law.
The so-called “Main Street Fairness Act” attempts to force online retailers that aren’t based in the state to collect sales tax if they use in-state advertisers or other affiliates. The measure is a legally dubious run-around of current U.S. Supreme Court law under Quill v. North Dakota, which only permits a state to force a company to collect tax if they have a physical presence.
The Department of Revenue, egged on by proponents, claims the bill will raise taxes by up to $170 million per year. However, a more likely outcome is for online retailers with in-state affiliate to sever their ties, relieving them of the unconstitutional tax collection burden. This is exactly what happened in Rhode Island and North Carolina. Only in New York do affiliate programs continue to exist, and that is simply to show harm in an ongoing legal challenge.
Severing nexus also means that in-state affiliates will go out of business, forcing them to relocate to neighboring states, as many have vowed to do in Illinois. Not only will the state fail to collect new Internet tax revenue, it will lose existing revenue generated from affiliate income taxes. All of these repercussions make the primary goal of the legislation – leveling the playing field – completely irrelevant.
Meanwhile, the Arkansas State Senate passed a similar measure yesterday and legislation is under consideration in South Dakota, Arizona, Hawaii, Connecticut, Minnesota, Vermont, Maine, and – of course – California.