Clarification on new affiliate tax bill

I’ve received a few questions in email and comments regarding yesterday’s post about the Illinois Senate Amendment 3 to HB 3659, which basically boil down to: “What’s the difference — aren’t they going to make Amazon (and Overstock, and other online retailers) collect sales tax in IL anyway?”

Answer: Nope.

Here’s where the confusion lies. Illinois is trying to make individual taxpayers cough up unpaid sales tax on purchases made at online merchants such as Amazon (back to 2004, thankyouverymuch!). There will be a line to this effect on our 2010 tax forms, and we’re supposed to estimate our back taxes and have up to October to pay without penalties. (No, I kid you not! back to 2004!)

However, Illinois does not have the power to make Amazon, or any other retailer without a physical presence in Illinois, collect Illinois sales tax. What the new amendment does is say that, if an Amazon sale is generated through an Illinois-based affiliate (blog or website), that this Illinois-based blog or website creates a “nexus” in Illinois. This virtual “nexus” is what theoretically allows the state to charge Illinois sales tax on purchases generated through these links — even though the Illinois-based blog or website is not actually selling you the item.

So, what happens then:

  • If this bill is signed into law, and you click on an affiliate link on Mashup Mom (or any other Illinois-based website or blog) that takes you to Amazon (or any other online retailer), then that retailer is now required to charge 6.25% IL state sales tax on products purchased through that link.
  • If this bill is signed into law, when you instead type Amazon.com into your web browser and make a purchase, Amazon is not required to charge you Illinois state sales tax, even if you live in Illinois. You are supposed to report that purchase and pay taxes on it on your own, what is called a “use tax.”

It currently costs you no more to purchase an item on Amazon.com (or any other Internet retailer) through a link on this site than it does to purchase it by going directly to Amazon.com. Should this bill pass, it will cost you 6.25% more to purchase an item through a link on this site to places that don’t currently charge Illinois state sales tax.

Retailers that have a physical presence in Illinois, such as JC Penney, Kohl’s, Sears, Best Buy, etc., already charge Illinois state sales tax, because that’s how the law works: Companies with a brick-and-mortar presence in a state are required to also charge sales tax on online purchases made on their websites.

The impact of this

Again, Amazon and other major affiliate sites have said that, rather than deal with this and/or in protest, they will simply drop all of their Illinois-based affiliates. This has already happened in Colorado after the passing of a similar law — they’re not bluffing here. So, not really a good potential revenue-maker for the state, since they don’t get sales tax on sales that are no longer happening. In addition, they will also no longer get income tax from the thousands of small and home-based internet businesses who were previously paying taxes on their affiliate income.

(And, even if they didn’t drop IL affiliates  — if you’re going to make an online purchase, what would you rather do: Go to someplace like Amazon directly, or click through me and pay 6.25% more? hmm.)

In related news

Didja see they’re also likely to hike the state income tax 75% next year?

And to clarify further, for the person who emailed thinking I’m “profiteering” off of you all…

My policy here has always been only to post links to things that are actually a deal, regardless of whether these are affiliate links or not. This site contains a mix of both. But, if I’m going to link to a deal, and an affiliate link is available, then I will use that affiliate link.

Affiliate links are part of what help pay for this site. Everything here is free to you, and no one ever has to buy anything from any of my links. (Trust me, most of you don’t! lol) However, running this site is not free to me — and since I spend several hours a day writing Mashup Mom, those are several hours a day I don’t have available to pursue other money-making activities. I’m not getting rich here, but it’s enough side income that Mashup Mom is my part-time job and home-based business. (And, one that I love! :) ) Thousands of other small IL blogs and websites are in the same boat.

Form letter you can send if you’re writing the governor

Joy posted a very nice form letter she found online and tweaked, if you’d like to borrow her verbiage when writing to the governor re: Amendment 3 of HB 3659.

As a resident of Illinois I am writing to you to express my vehement opposition to Amendment 3 of HB 3659 (page nine, 1.1, declaring that online affiliates will establish nexus for out-of-state retailers). This Amendment will end up costing Illinois jobs and revenue, and not gain any additional sales tax because it will devastate thousands of Affiliate Marketers.

Affiliate Marketers are simply website owners who earn income from ads placed on their sites. They are the unintended victims if this legislation passes. During these times of drastically high, long-term unemployment, thousands of hard working Illinois residents have turned to the internet as an income source. This Amendment will take away, what has become a financial lifeline for thousands of families.

Out-of-state merchants will terminate their affiliate relationships if HB 3659 is passed. And, most alarming, this law will directly contribute to Illinois’ budget crisis. When similar laws passed in New York, North Carolina and Rhode Island, over 200 merchants terminated affiliate programs in just such a manner. I implore you not to let the same thing happen to Illinois Affiliate Marketers. Please consider that the state of Illinois will not collect those sales taxes – and thousands of small businesses will be destroyed in the process.

I respectfully ask you to strongly consider opposing Amendment 3 of HB 3659.

Thanks, Joy!

Semi self-serving request: Write the governor

Exclamationphoto courtesy mag3737 at Flickr.com
used under cc license

I’ve mentioned a number of times that this blog is made possible partially because I receive income from the affiliate links on the site. (For example: If I link to an item on Amazon, and you buy that item through my link, I receive a percentage of your purchase as a commission.)

Well, the Illinois Senate today passed Senate Amendment 3 to HB 3659, which basically says that: If a sale at an Internet retailer originates through an affiliate link on an Illinois-based blog or website, that sale will be charged 6.25% Illinois sales tax — regardless of whether the retailer has a physical presence in Illinois. (For example — if and when this bill goes into effect in July: If I link to an item on Amazon, and you buy an item through that link, you pay 6.25% sales tax. If you go directly to Amazon and don’t click through my link? No sales tax.) The bill is now headed to the governor’s office for his signature.

You can read two brief articles on this here and here, and the Chicago Trib just picked it up here. In the couple of states that have passed similar laws, large online retailers have simply dropped all of their affiliate programs in that state. I’ve been receiving dire email warnings from all of my major affiliate programs warning of the same thing if this bill becomes law here. For instance, here’s the email I received from Amazon today:

Greetings from the Amazon Associates Program:

We regret to inform you that the Illinois state legislature has passed an unconstitutional tax collection scheme that, if signed by Governor Quinn, would leave Amazon.com little choice but to end its relationships with Illinois-based Associates. You are receiving this email because our records indicate that you are a resident of Illinois…

Please note that this not an immediate termination notice and you are still a valued participant in the Amazon Associates Program. But if the governor signs this bill, we will need to terminate the participation of all Illinois residents in the Associates Program. After that point, we will no longer pay any advertising fees for sales referred to amazon.com, endless.com and smallparts.com nor will we accept new applications for the Associates Program from Illinois residents.

The unfortunate consequences of this legislation on Illinois residents like you were explained to the legislature, including Senate and House leadership, as well as to the governor’s staff.

Over a dozen other states have considered essentially identical legislation but have rejected these proposals largely because of the adverse impact on their states’ residents.

Governor Quinn’s office may be reached here.

We thank you for being part of the Amazon Associates Program, and wish you continued success in the future.

Sincerely,

Amazon.com

I have received similar emails from other large affiliate programs I belong to.

This is incredibly short-sighted — not just because I’m personally affected, but: 1) If large affiliates drop their programs in Illinois, they’re not going to collect much sales tax, and 2) if affiliate income goes down, they’re also going to lose out on income tax revenue.

The future of Mashup Mom

Dum dum dum… here’s the deal. I love writing this blog and bringing you the deals. I am able to devote as much time to it as I do because I receive income from the site. If this bill passes, and the affiliate programs follow through on their promise to drop Illinois-based sites, the income I receive from Mashup Mom will drop precipitously. In that case, I will unfortunately need to devote more time to other money-making activities, and will have less time to spend over here. (No, I won’t drop the site — but the posts will be much fewer!)

Please

If you are an Illinois resident, please take a moment to contact Governor Pat Quinn’s office here and register your opposition to Senate Amendment 3 to HB 3659.

Thanks for your time — now back to our regularly-scheduled blog. :)