Amazon Tax Unconstitutional?
A 2011 law designed to force certain out-of-state internet retailers to collect Illinois sales tax was declare unconstitutional on Wednesday by Cook County Circuit Court Judge Robert Lopez Cepero. Public Act 96-1544, effective July 1, 2011, requires out-of-state internet retailers such as Amazon.com to collect Illinois sales tax if they have a commission contract with an in-state business that refers customers to them by way of a website link. Prior to the 2011 law, internet retailers without a physical presence (nexus) in the State were not required by law to collect Illinois sales tax, although consumers purchasing from them have a duty to report Illinois use tax on their annual income tax return.
The 2011 law provides that the commission arrangement between the two parties creates an economic nexus that subjects internet retailers like Amazon.com and Overstock.com to Illinois sales tax collection obligations. Judge Cepero ruled that Illinois’ controversial new nexus law violated the commerce clause of the U.S. Constitution because the contractual arrangement with the Illinois website business does not establish nexus and because the U.S. Congress has placed a moratorium on new Internet taxes.
The Department of Revenue has indicated that it respectfully disagrees with Judge Cepero’s ruling and is reviewing its appeal options. The lawsuit was brought by the Performance Marketing Association.