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Illinois Passes "Amazon" Legislation. Should I Care If I'm Not Amazon?

Earlier this month, Governor Quinn signed the controversial “Amazon” legislation sent to him by the lame duck legislature in January. Starting July 1, sellers who pay commissions to Illinois residents who refer potential customers to them are required to collect and remit Illinois sales tax if the referrals generate sales exceeding $10,000 for any four quarters.

Example — 

CAB manufactures and sells specialty fitness equipment. CAB is based in Arizona, where it has its manufacturing plant, administrative offices, and catalog call center. CAB has no retail outlets in Illinois, does not send sales representatives to Illinois, and delivers goods by common carrier.

CAB markets its products in Illinois by entering into agreements with health clubs whereby the clubs refer members to CAB’s fitness products. When a member makes a purchase from CAB and the health club is identified, the health club receives a commission. Sales generated from the referrals exceed $10,000 for the past four quarters.

CAB is presumed to have nexus with Illinois through its independent contracts and is required to register as a sales tax vendor, collect Illinois sales tax, and file Illinois sales tax returns.

The legislation also includes a provision where, if a seller enters into an agreement with an Illinois resident under which the seller sells the same or substantially similar line of products or services as the resident and does so using an identical or substantially similar name as the resident, the seller must collect and remit Illinois sales tax.

Example — 

CAB Fitness is an Illinois retailer that sells fitness equipment. Even though CAB Fitness and CAB, from the above example, are unrelated, CAB Fitness has an agreement to sell CAB's fitness equipment. Because seller (CAB) has entered into an agreement with an Illinois resident (CAB Fitness), and both businesses sell substantially similar products and have similar names, CAB must collect and remit Illinois sales tax.

What Does This Mean If I’m Not Amazon?

If you're an Illinois resident, it means that more of your Internet purchases may include sales tax. While that sounds like a price increase, it should not be because use tax should have been self-assessed. In fact, the 2010 Illinois Form 1040 provides a new line to make this easier from an administrative standpoint.

If you're an Illinois retailer, this should make your business more competitive with online retailers because more of them will be responsible for collecting and remitting sales tax.

If you're an affiliate receiving a commission for referring customers, you have probably already received notice from Amazon.com or Overstock.com that they are cancelling their contracts effective April 15, 2011 and May 1, 2011, respectively. Approximately 9,000 Internet-based affiliates have received this termination notice and some have already threatened to leave the state.

If you're the State of Illinois, whether or not tax revenues will increase is unknown. While more businesses may end up collecting Illinois sales tax, others may move out of Illinois, reduce Illinois income tax withholding, and offset any increased sales tax revenue. 

What Should I Do?

If you're an Illinois resident, you should be self-assessing use tax on your online purchases. If you have not been doing so, you should contact your Blackman representative who can assist you in minimizing penalties and interest owed for prior years.

If you're an Illinois retailer, celebrate the playing field being leveled.

And if you operate an Internet website, make sure you are up to date on compliance with each state's rules. Illinois has joined New York, Rhode Island, and North Carolina in enacting Amazon legislation. On the other hand, Oklahoma and Colorado have enacted "notice" requirements whereby retailers not collecting sales tax must notify citizens of their use-tax responsibilities. And on the same day Governor Quinn signed Illinois's Amazon legislation, South Dakota enacted its own version of Amazon. With this rapidly developing area of state tax law, you should regularly contact your Blackman Kallick representative o Jason Parish at jparish@BlackmanKallick.com or 312-980-2959 to ensure that you are in compliance.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.