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7 March 2011


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Illinois Internet Retail Sales Tax Law

Illinois is on its way to levying taxes on Internet retail purchases with the passage of House Bill 3659 by a vote of 88-29 in the State House.  The bill once signed into law by the governor will require Internet retail businesses in Illinois with sales over $10,000 to collect 6.25% sales tax on Illinois residents who make purchases.  This includes businesses that do not  have a physical presence but have a contractual relationship with other businesses that reside in the state.  Lawmakers have 30 days to send the bill to the governor and he has 60 days to sign it.  If signed into law it would take effect 1 July 2011. 

Other states that passed such law include New York (2008),  North Carolina (2009), Rhode Island (2009) and Colorado (2010). Twelve other states have rejected attempts to impose such laws. 

In January 2011 a U.S. District Court granted an injunction against the Colorado Law.

Small businesses such as drop shipped sales, affiliate programs and all other forms of retail Internet based business will be affected.    When the same laws were enacted in New York, Colorado, North Carolina and Rhode Island the result was the loss of jobs in those states.   Companies moved their businesses to other neighboring states to avoid paying the tax and to protect their businesses.  Companies like have already sent out notices to their Affiliates informing them that their contracts will be terminated if the Governor Pat Quinn sign the bill into law.

In 1992 the U.S. Supreme Court ruled such laws in the Quill Corp. v. North Dakota case.  It ruled that more than 6,000 separate sales and local tax jurisdictions in the United States amounts to an unreasonable burden on interstate commerce. In short, the court said, attempts to force out-of-state merchants to collect state and local sales taxes are unconstitutional.

See follow on story.

By Owen Daniels










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