Illinois Internet Sales Tax Bill Is Already A Failure

Illinois Internet Sales Tax Bill Is Already A Failure

 

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Another post that has nothing to do with real estate but I couldn't help myself. The ink hasn't even dried on Quinn's signature and already the Internet Sales Tax bill he signed yesterday is a failure.

Background

A huge problem for the city and state is that they don't collect tax revenue on Internet purchases to fund their profligate spending. A huge problem for local bricks and mortar retailers is that they have to charge customers the exorbitant sales tax charged by the city and the state and consequently customers are driven to online purchases. Worse yet...people go into local stores to check out the merchandise and take up sales associates' time and then go online to buy the product. This is driving brick and mortar retailers out of business.

Solution

So the legislators did what legislators do and they passed a law, which was signed by the governor yesterday, that imposes the state portion of the sales tax (6.25%) on Internet retailers that have more than $10,000 in annual sales in the state of Illinois. However, there is another twist in the law - and maybe someone else can explain to me why all these laws have this twist - that only imposes the tax if the retailer has affiliate sellers in the state.

The Law Of Unintended But Predictable Consequences

Unfortunately, the law of unintended but predictable consequences trumps all other laws. As you might expect Amazon is the most impacted online retailer out there and they promptly did what they have (almost) always done in every other state that tried to do this. At least 14 hours ago they sent a notice to all their affiliates in Illinois and terminated their relationship. In other words with a single click on the keyboard (the emails were already set to go out) they undid the law.

Considerations

This is a complex problem. On the one hand the government wants to level the playing field between online retailers and the local retailers, which is a noble goal. I know retailers that are on the verge of extinction because the playing field is not level. On the other hand the online retailers don't receive any city and state services so why should they pay for something they don't get? In addition, online retailers have a more efficient business model than local retailers and thus consume fewer resources - i.e. they are "greener".

I don't know of a good solution. If consumers were more thoughtful about how they made their purchases this wouldn't be a problem. Want that store around the corner available for you when you want to hold the product in your hands? Better suck up the taxes and buy from them. Of course, this is asking too much. But maybe I can influence just a few people to do the right thing by relating my own recent personal experience making a high dollar purchase. I was shopping for a digital camera (no, I was not going to use it to take my own property photos!) and intended to research it online and buy it from Amazon. I quickly determined that I needed help so I decided to go to Central Camera, with the intent of buying from them and paying the sales tax and probably higher price. Those guys are awesome. George spent 45 minutes with me explaining the ins and outs of digital photography. It was worth every extra penny I paid. However, I worry that the next time I need Central Camera they might not be there.

Filed under: Not Real Estate

Tags: Not real estate

Comments

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  • I believe the reason that the law requires affilliates is to get around Gibbons v. Ogden. Without affilliates in the state, the tax would arguably be a restriction on interstate trade.

    Though I think the right thing to do would be for the federal government to step in an pass a specific law permitting these regulations.

  • In reply to mottystone:

    Thanks for clarifying that.

  • In reply to mottystone:

    The reason for the "twist" is that without local affiliates actually in a particular state's geographic jurisdiction, the state cannot compel an online or mail-order vendor to pay taxes at all.

  • In reply to Ankhorite:

    That's not it. The real issue is the National Bellas Hess case, where the U.S. Supreme Court ruled, in a case involving Illinois, that (1) you can't place on a business outside the state the obligation of computing the different sales taxes for each of its jurisdictions, and (2) "the Court has never held that a State may impose the duty of use tax collection and payment upon a seller whose only connection with customers in the State is by common carrier or the United States mail." Of course, Al Gore had not yet invented the Internet.

    Hence, Illinois did exactly what the Supreme Court allowed: imposed a flat tax only where the business had a contact with the state. That should not be hard for you or the other commenters to figure out (although New Bear did). No sense passing a law that would be immediately struck down by a federal court (although that hasn't deterred the Illinois General Assembly before).

  • In reply to Ankhorite:

    You're also missing the obvious point here: you are legally obligated to pay sales tax on all Internet purchase regardless of this or any previous laws. This law only obligates online vendors to collect sales-tax, and the reason for the affiliates clause (as has already been pointed out) is that the SCOTUS has already said that an out-of-state agency can not be compelled to collect tax for another state.

    You do pay your state sales tax for all of your Internet purchases don't you? You're not a tax cheat complaining because the government finally passed legislation to collect what you don't have the moral backbone to pony up on your own, are you? I ask because that pretty much sums up every criticism of this law I've heard - including yours.

  • In reply to gajillion:

    And do you pay your sales tax on all your Internet purchases? I don't think I know of a single person that does. In fact, there's probably data available on this. I'd be surprised if the entire state receives more than $10,000 per year from that honor system.

  • In reply to LucidRealty:

    Gary, I'd be surprised if 10,000 people in the entire state are even AWARE of this honor system. :)

  • In reply to gajillion:

    I feel the state is double dipping. Those of us who get income from affiliations are taxed on that income.
    I run an internet website that is basically non profit (preventcanswers.org). I make just enough with a few affiliations to cover my site fees, mostly from Amazon. Now that is gone, thanks to the tax us to hell and back idiots who run this state.
    I have no desire to add so many ads I look like Mercola. My website is a labor of love, to help others. But now, I will have to pay hundreds of dollars out of pocket with no way to make an income to cover our costs, thanks to Quinn and Co.
    I swear the dems who run Illinois will not be happy until they chase out every last business person.

  • In reply to 180Degrees:

    Quinn is doing the best he can with the same ghastly recession that is bankrupting states all over the country.

    Although I *DO* wish he'd release, say, all persons convicted of marijuana use. That would save some major bucks.

  • In reply to 180Degrees:

    A number of brick and mortar retailers are trying to recruit the affiliates dropped by Amazon. I know Sears is one of them. There are 2 others I believe. Hopefully you can make up some of your lost revenue.

  • In reply to 180Degrees:

    You are arguing out of both sides of your mouth.

    The average restaurant owner in Chicago pays about 12% retail occupation tax (passed on as "sales tax"), then pays whatever the income tax is on the business profit in the state. So, people who are buying from Amazon would have been treated no differently. That isn't a double tax.

    Anyway, since I assume that you are a self-employed individual, you are reporting what Amazon reports on its 1099-Misc, then deducting your business expenses on Schedule C, resulting in no self employment income to tax.

    In any event, the law is placing the burden to collect the use tax on Amazon, not you, unless you are the one who is collecting the purchase price from the ultimate consumer.

    Maybe you should get informed before posting.

  • In reply to mottystone:

    I don't feel bad for going into the store and checking out the merchandise only to buy it online (at a cheaper price) later. That being said, I'll go do that a Best Buy or other big brand name store. I'd feel uncomfortable going into a boutique only to look around, waste the sales associate's time and not buy anything. That's a different store.

  • In reply to mottystone:

    "On the other hand the online retailers don't receive any city and state services so why should they pay for something they don't get?" Really? So when Amazon ships my merchandise to me, is it teleported? If not, then they are using roads I help pay for. Those roads are patrolled by police officers I help pay for. The snow is plowed from them. They are lighted at night by electricity I pay for.

    What about these "affiliates"? Were they using no city or state services in making a buck?

  • In reply to falsecut:

    I expected someone to ask this question. It's a reasonable one. However, let's say UPS does the Amazon deliveries. UPS pays taxes for the services they receive from the city and state and charges Amazon accordingly. Same for the affiliates.

  • In reply to LucidRealty:

    Please explain how an affiliate, operating a brick and mortar building just like other retailers, is somehow entitled to a tax break just because they ship to you instead of you coming to them.

  • In reply to falsecut:

    An affiliate does not have a brick and mortar building and is not a retailer. They simply send traffic to Amazon and get compensated for that. And prior to this law they received no tax breaks. They paid taxes just like every other business operating in Illinois. Now those affiliates will either shut down or move to another state.

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    After 20 years in the corporate world and running an Internet company, Gary started Lucid Realty with his partner, Sari. The company provides full service, while discounting commissions for sellers and giving buyers rebates.

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