Yesterday, after two-months of mulling over a decision, Democrat Illinois Governor Pat Quinn today signed controversial legislation (House BIll 3659) that requires Internet retailers like Amazon.com and Overstock.com to collect Illinois’ 6.25% sales tax if they have affiliate sellers in the state.
House Bill 3659, also known as the Mainstreet Fairness Bill, was rushed and passed by the state’s lame duck legislature in early January, 2011. Quinn could have vetoed the bill, but his signature made it law. His lack of action would have also made HB 3659 law today.
Amazon immediately responded by terminating its relationship with personal or corporate affiliates that reside in Illinois.
Barnes & Noble, Best Buy, Wal-Mart, and Sears have all issued public invitations to Amazon’s spurned associates to join their affiliate marketing programs instead.
Barnes & Noble published an open letter to Amazon affiliates after Amazon threatened to terminate Illinois affiliated about two months ago.
Barnes & Noble is disappointed to hear that Amazon would threaten small businesses’ livelihood rather than comply with state law. Here at Barnes & Noble, we value the 13,000+ members of our affiliate program worldwide. They are an important part of our overall business success and strategy. Barnes & Noble collects and remits sales tax due from its sales, including from BN.com, our e-commerce business.
Barnes & Noble wants Amazon.com affiliates who have been terminated to know that you are welcome to join the Barnes & Noble affiliate family. If Amazon doesn’t want you, we do! And, we will take care of collecting and remitting all sales taxes due on BN.com sales to its customers so you and our customers don’t have to worry about being hassled or prosecuted by state tax auditors.
Barnesandnobleinc.com Barnes & Noble Issues Open Letter to Amazon Affiliates
The Alliance for Main Street Fairness, a bricks and mortar retailers organization, launched a new web site to connect affiliates “about to get thrown under the bus” by online-only sellers with retailers who already collect sales taxes on line.
The Illinois Retail Merchants Association and and merchants praised the law as a matter of “fairness for retailers, fairness for the economy but most importantly, fairness for taxpayers.”
The new Affiliate Nexus law in Illinois is modeled after the law adopted in New York in 2008. Amazon immediately challenged the constitutionality of that law in court, while it kept its New York affiliates aboard and now collects New York sales tax to products shipped to New York. But affiliates in Illinois, Colorado, Rhode Island and North Carolina also got booted. Arizona, California, Connecticut, Hawaii, Minnesota, Mississipi, and Vermont are also considering the ‘Amazon Tax Law’.
Many criticize the law because it won’t end up gaining any revenue for the state because Amazon and Overstock are simply stopping their affiliate programs. It might be fair for the brick and mortar retailers, but it punishes the wrong business — the Illinois affiliates. Amazon will simply stop using Illinois affiliates to avoid paying the tax. Illinois affiliates won’t make as much money, and will therefore not have as much money to spend locally in Illinois. Some of the larger affiliates, like CouponCabin.com might move out of state.
In response to the Governor’s approval of HB 3659, CouponCabin.com, published the following statement:
“The Governor’s approval of HB 3659 is deeply disappointing. As a result, Illinois will lose jobs, many thriving businesses like CouponCabin and other affiliate marketing firms will be forced to move to other states, and most important, this law will not generate the tax revenue Illinois thinks it will collect.
“Those of us who opposed HB 3659 made every effort to persuade the Governor that it is a misguided attempt to bring ‘fairness’ and new revenue to Illinois by requiring out-of-state merchants who advertise on websites operated in Illinois to collect sales taxes from Illinois customers.
“The reality is that just like other states that approved similar legislation, Illinois will not collect additional tax revenue. Instead, the merchants who would be affected by this law will simply sever their contracts with Illinois affiliate advertisers, as they have done in every other state. The only result of this law is that high-growth businesses like CouponCabin will be driven out of Illinois to maintain their relationships with out-of-state merchants.
“We support efforts to find a solution in Illinois that could correct the damage HB 3659 will cause. We will also continue to work within our industry toward a national solution to these tax issues that would enable our businesses to continue to grow and create more jobs, no matter where they are located.
“In the meantime, CouponCabin is actively exploring moving to Indiana. It’s a shame we have to consider leaving our longtime home in Illinois, but we will do what is best for our business.”
— Scott Kluth, CEO
Many affiliate marketers use banner links and ads to promote sales of Amazon products — using a business model of an online store or an information or news website. Amazon sales bring revenue to the affiliates, which keeps the online store or website in business. Some affiliates have turned to the at-home businesses for income — turning entrepreneur, and turning away from unemployment and a bleak job market.
States, like Florida have considered another approach to implementing Internet sales tax. Legislators proposed with two bills (HB 1443 & SB 2552 [PDF]) that the Department of Revenue develop and implement Internet Sales Tax Automated Revenue Tracking (iSTART). State Rep. Kevin Ambler (R-Tampa) proposed a private-sector solution to Florida’s problem of collecting taxes due on remote purchases made over the Internet. have credit card companies collect and remit the taxes on Florida’s behalf.
Florida might be missing out on as much as $2B in revenue each year by failing to collect the sales tax due on items purchased online — sometimes via Amazon affilliates. The iSTART bill would fix this problem and also reduce Florida’s sales tax by a penny after internet collections surpass $5B.
The iSTART bill proposes that the Florida Department of Revenue contract with a company to develop software that credit card companies would use to automatically charge the sales tax due for Internet purchases. The software, as proposed, would automatically exempt purchases that are not subject to the sales tax, such as groceries and medicine. The software could also be leased out for use to other states, like Illinois, after they find that their Affiliate Nexus law was useless.