Illinois Court Rules “Amazon Tax” Unconstitutional

[Nick Pyle]

Consumers who live in sales-tax states, such as Illinois, owe state
sales tax on their Internet purchases, whether they pay it during
virtual checkout or when they file their state income tax returns. But
few actually pay unless tax is collected at checkout. That has the
effect of making online purchases cheaper than those at bricks-and-
mortar retailers.

In March 2011, Illinois passed the Main Street Fairness Act,
informally dubbed the Amazon-tax law. Before the law, online retailers
were forced to collect and remit sales taxes on purchases made by
Illinois residents only if the online retailer had a “physical
presence” in the state. For example, Sears must collect sales tax on
virtual checkout at Sears.com because it has a headquarters and retail
stores in Illinois. But Amazon.com does not have a physical presence
and did not have to collect tax on checkout.

Cook County Circuit Court Judge Robert Lopez Cepero said in court
Wednesday that the Illinois law violated the commerce clause of the
U.S. Constitution, which limits who a state can tax, and that the law
conflicted with the federal Internet Tax Freedom Act, which prohibits
some types of Internet-related taxes. He directed parties to draft an
order reflecting his opinion.

The quick decision Wednesday was unexpected, even to officials of the
Performance Marketing Association, said PMA Executive Director Rebecca
Madigan. “The judge pointed out and agreed with us that the state
overreached its boundaries in trying to regulate interstate commerce,”
Madigan said. “We…believe it paves the way for Internet marketing
affiliates to get back in business in Illinois.” However, the battle
has just begun, said David Vite, president of the Illinois Retail
Merchants Association, which supports the law. “This is the first step
in a very long battle,” Vite said. “We have seen local judges be
overturned regularly on these kinds of questions.”

While several states have passed or are considering passing an “Amazon
Tax” compelling online retailers to collect sales tax on purchases
made by the state’s residents, the victory in Illinois — which comes
on the heels of a similar ruling in federal court regarding an Amazon
Tax instituted in 2010 in Colorado — is a strong indication that the
courts may well view the tax as an overreach of state powers, and a
violation of Quill v. North Dakota.