Illinois is just one state in a long line that has imposed sales tax collection on out-of-state retailers when there are in-state affiliates that refer sales to that out-of-state retailer via links on the in-state affiliate’s web site. These laws are pretty much aimed at Amazon and any other large retailer that use the same arrangements. The Illinois General Assembly passed its own “Amazon tax” in 2011. It was challenged by the Performance Marketing Association, Inc. Unlike the result in other challenges in other states, the PMA won at trial with the decision affirmed by the Illinois Supreme Court in a 6-1 opinion released last Friday.
The PMA argued that the tax collection requirement was discriminatory and as such was a violation of the Internet Tax Freedom Act (ITFA) (47 U.S.C. § 151 note (2000). The provision which limits the collection of discriminatory taxes on electronic commerce as prohibited reads:
“(A) any tax imposed by a State or political subdivision thereof on electronic commerce that—
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(iii) imposes an obligation to collect or pay tax on a different person or entity than in the case of transactions involving similar property, goods, services, or information accomplished through other means.” 47 U.S.C. § 151 note.
The distinction the Court draws comes from the fact that tax collecting requirements are not imposed on out-of-state retailers who enter into advertising campaigns with Illinois publishers and broadcasters. The PMA argued that the taxing requirement comes into effect simply through a link on a web site which can be international in scope. The Court agreed with this:
Under paragraph 3 of the definition section of the Use Tax Act, retailers who enter into contracts with Illinois publishers and broadcasters for advertising “disseminated primarily to consumers located in this State,” i.e., locally, are obligated to collect use tax. But Internet advertising is different. As the parties’ joint stipulation of facts states: “The home page and other publicly-available pages of any Internet website can be accessed from a computer, or other digital device, located anywhere in the world that is connected to the Internet via wire or radio signal. Thus, information appearing on a webpage is available and disseminated worldwide.” (Emphasis added.) Illinois law does not presently require out-of-state retailers who enter into performance marketing contracts for “offline” print or broadcast advertising which is disseminated nationally, or internationally, to collect Illinois use tax. However, under the Act, out-of-state retailers who enter into such contracts with Illinois Internet affiliates for the publication of online marketing—which is inherently national or international in scope and disseminated to a national or international audience—are required to collect Illinois use tax. In this way, by singling out retailers with Internet performance marketing arrangements for use tax collection, the Act imposes discriminatory taxes within the meaning of the ITFA.