Cook County Judge Cepero ruled on Wednesday that Illinois’ Main Street Fairness Act is an unconstitutional regulation of interstate commerce by a state.
The nationwide battle over the collection of sales tax online is just another example of the government desperately trying to keep up with technology-driven changes in what was once a straightforward idea: shopping. Who collects a sales tax when we’re shopping in the cloud?
The Main Street Fairness Act attempted to nail online retailers like Amazon down to a brick-and-mortar presence in Illinois by incorporating affiliates into the statutory definition of “physical presence.” Affiliates are companies who refer online business to Amazon. CouponCabin.com is one of the largest of the nearly 9000 affiliate-type businesses in Illinois. A click-through referral from CouponCabin nets it a commission from Amazon on the eventual sale. Before the MSFA, Amazon didn’t have to collect Illinois sales tax on that purchase, resulting in a better deal for the consumer.
The MSFA was enacted in March of last year; on April 15, Amazon terminated its relationships with Illinois-based affiliates. Overstock.com made the same move on May 1. Thereafter, several Illinois affiliates were reported to be exploring the possibility of a move to Wisconsin or Indiana to avoid losing Amazon commission revenue.
The Illinois Department of Revenue, the loser in Wednesday’s ruling, has indicated that it is reviewing appeal options and reiterated that the MSFA was passed by both Illinois General Assembly houses with significant support.
This case highlights the difficulty of one state trying to regulate something as omnipresent as the Internet. Perhaps this issue is better suited for a federal solution? Sen. John Ensign (@JohnEnsign) thinks so; he sponsored the pending Permanent Internet Tax Freedom Act of 2011 in the Senate. It currently sits in the Committee on Finance.
Is tax-fairness legislation necessary to even the playing field between online and brick-and-mortar retailers? Do we have legislators willing to learn the difference between the two in order to fairly regulate both? What do you think?