On Thursday, Governor Quinn signed a measure he called the "Mainstreet Fairness Act," levying a new set of taxes on online retailers. Depending on who you ask, the law, known colloquially as the "Amazon Tax," will be a massive windfall in state revenues, or a set of empty promises that will cause companies to flee the state and revenues to drop.
The bill passed both houses of the state legislature with sweeping majorities. It would require Amazon to collect sales tax on all purchases made in Illinois, by claiming that the company has a presence in the state through so-called "affiliates." Those affiliates direct users to sites like Amazon to make purchases, and earn money when they do. As such, the new law states, those sites are actually located in part in Illinois, and therefore must charge Illinois sales tax on all purchases made by buyers in the state. Until now, residents of Illinois were required to report all purchases from out-of-state sites like Amazon and pay the sales tax voluntarily along with their income taxes, according to the Illinois Department of Revenue. But few taxpayers even know that fact, and since enforcement is difficult if not impossible, it was rarely paid.
Senate President John Cullerton was one of the chief proponents of the new law; when the bill passed, he issued a press release praising its benefits. "Under this proposal, Illinois would generate an additional $150 million in much-needed revenues in our efforts to prevent millions of dollars in cuts to public safety, health care, and education that would occur without action," Cullerton wrote. He also said the bill "will help spur economic activity and job growth within the state by leveling the playing field for Illinois’ small businesses" -- brick-and-mortar stores that have to collect sales tax face unfair competition from retailers like Amazon that don't charge the tax, the argument goes.
And some Democrats in Congress tried to enact similar legislation on a national level last summer.
But critics of the measure in Illinois cite the examples of previous states that have tried to pass similar Amazon taxes. In those cases, Amazon followed through on a threat it's made in Illinois as well: to simply terminate its contracts with all the affiliates in those states, thereby avoiding the requirement to pay the tax. That happened in Colorado almost exactly a year ago, as it did in North Carolina and Rhode Island, three other states with similar measures on the books.
Providence Business News reported after the tax was passed there:
Officials at the R.I. Department of Revenue “do not believe that there has been any sales tax collected as a result of the Amazon legislation,” said Paul L. Dion, who heads the department’s revenue-analysis office.
Indeed, Amazon, Overstock.com, and several other online retailers have promised to cut off Illinois affiliates similarly if the law went through. And the Chicago Tribune quoted the owner of one of the affiliates, FatWallet.com, saying that he wouldn't simply roll over and take it.
"The reality is that as a business owner with 52 employees, we're not going to just get shut down because of a law Illinois passes," CEO Tim Storm said. "Our customers don't care whether we're in the state of Illinois."
Still, after weighing both sides, Governor Quinn signed the bill into law Thursday afternoon. “This law will put Illinois-based businesses on a level playing field, protect and create jobs and help us continue to grow in the global marketplace," he said in a press release.
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(Update: A previous version of this article mis-stated what the new tax would be levied on. It would encompass all purchases made on sites like Amazon and others, not just those made through affiliates.)