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.