Illinois Judge: Law Requiring Amazon To Collect Sales Tax Is Unconstitutional

Last year, Illinois joined the ranks of states passing laws requiring Amazon and other online-only retailers to collect sales tax on purchases by that state’s residents. Yesterday afternoon, a judge in Cook County, IL, surprised a lot of people by ruling this law violates the U.S. Constitution.

Before the law was enacted, Amazon and some other online sellers were able to avoid collecting sales tax because they do not have a bricks-and-mortar presence. But, like similar laws in a handful of other states, Illinois claimed that Amazon’s affiliate program — wherein anyone can use Amazon as a storefront through which to sell goods — included bricks-and-mortar locations in the Land of Lincoln, meaning that Amazon was obligated to collect sales tax.

But much like it’s done in almost all states with such laws, Amazon merely cut ties with the approximately 9,000 affiliates in Illinois, rather than collect tax.

Because some Illinois businesses relied heavily on Amazon affiliate commissions, they left the state and set up camp in nearby states that haven’t yet passed laws on internet taxes.

A trade group representing online sellers filed a lawsuit over the new law. Yesterday, the judge issued a ruling.

From the Chicago Tribune:

Cook County Circuit 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.

“The judge pointed out and agreed with us that the state overreached its boundaries in trying to regulate interstate commerce,” said the executive director for the Performance Marketing Association, the plaintiff in the lawsuit against the Illinois Dept. of Revenue. “We ¬Ö believe it paves the way for Internet marketing affiliates to get back in business in Illinois.”

Meanwhile, the defendants “respectfully disagree with the court’s ruling and are reviewing our appeal options with the attorney general’s office… We need to protect ‘brick and mortar’ stores from an unlevel playing field, and we need to recoup some of the estimated $153 million that was not paid by online merchants prior to the law being implemented.”

Earlier this week, rather than pass a law requiring Amazon and others to collect sales tax, the state of Nevada came to an agreement with the online giant to begin collecting tax on sales to Nevada residents starting in 2014.

Of course, that might be all for nothing if Congress gets around to passing legislation setting out a national standard for how online retailers collect sales tax in states that have such a tax.

And remember — even if you live in a state where Amazon doesn’t collect sales tax, you are obligated to pay that tax (if applicable) when you file your taxes. We know you probably won’t, but don’t say we didn’t tell you.

Cook County judge says ‘Amazon-tax law’ unconstitutional [Chicago Tribune]

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  1. YouDidWhatNow? says:

    “even to officials of the ,”

    I have never trusted the officials of the . They are as skeezy as it gets. Almost as bad as the directors of and the administration at the .

    • Blueskylaw says:

      I’ve actually had to deal with officials of the and at the, and
      they had no desire to help me even though I voted for them.

  2. YouDidWhatNow? says:

    “We need to protect ‘brick and mortar’ stores from an unlevel playing field”

    …anyone who ever utters such a phrase should be punched in the face. That’s one of the stupidest things ever said, in the history of stupid things that have been said.

    The collection or not of sales tax at the POS makes not the slightest difference in the preference for online vs. B&M. Even if the only factor you’re looking at is the total cost at the POS (ignoring the plethora of other reasons why online is preferable to B&M), the inescapable fact is that it’s *still* WAY cheaper to buy online than at a B&M.

    If an item costs $100 at a B&M, and there’s 10% sales tax, total cost is $100.

    If the same item is $80 online, and there’s 10% sales tax, total cost is $88.

    …so who, exactly, is going to say “oh well, if I can only save $12 at the POS instead of $20, I’m going to jump on the car and drive to the B&M and buy the item there instead.”?

    • final_atom says:

      “If an item costs $100 at a B&M, and there’s 10% sales tax, total cost is $100.”

      …total cost is $110, not $100.

    • CubeRat says:

      Your math is off.
      If an item costs $100 at a B&M, and there’s 10% sales tax, total cost is $100
      ** total should be $110; therefore the difference is $22 – $110-$88.

      As to your agruement that things are way cheaper….I disagree with this, as I can often find goods at the same price or cheaper @ b&m than on the internet and I don’t have to wait. Yes, sometimes it is cheaper on the net, even with s&h, and the wait.

      • YouDidWhatNow? says:

        Allow me to facepalm myself. I’d have hoped I could have managed basic arithmetic at this point.

        However, while there certainly are cases where, on occasion, you can find a similar price at a B&M compared to online, it’s rare. By far, average prices on, say, Amazon.com or Newegg.com are *way* cheaper than what you’re going to pay at Target or BBY.

    • Geekybiker says:

      That’s not how it works.
      $100 BM
      $80 online
      + TAX
      $110 BM
      $88 online
      +shipping
      $110 BM
      $98 online

      You’ll probably save money, but some folks will decide they’d rather have the item today than save the difference. I know there were times that I would do exactly that.

      • YouDidWhatNow? says:

        Many times things ship for free on the internet. And of course there are things like Amazon Prime.

        …and “shipping” isn’t free at a B&M. Unless it’s within walking distance, you’re going to get in your car and burn $4 gas getting there and back, and whatever value you associate to your own time to do so.

        I buy stuff online *all* the time. And it’s rare that I wind up paying much, if any, shipping. Yay Newegg et al.

    • alexwade says:

      One thing you cannot put a price on is customer service. I would be willing to pay slightly more for good customer service. Not significantly more, but still I would be willing to pay more. B&M blame internet prices and lack of sales tax collection on their failures. Customer service is really where they fail.

    • dangermike says:

      The rationale for Article 1, Section 8, Clause 3 of the US Constitution was the realization that allowing individual states to place tariffs on each other would be damaging to the Union. The argument presented in the quote is completely antithetical to that portion of the US Constitution. Without amending federal law, taxing businesses from other states is not an allowable activity. To prove that this concern is as valid today as it was two hundred and some-odd years ago, one need only consider the backlash over Arizona’s SB1070. The immediate aftermath was numerous calls for boycotts on travel and goods from Arizona. Demands for excision from the Union are but a step further. This is the same reason why Use Taxes are self-reported and non-binding. Enforcing them would create standing for a constitutional challenge.

  3. Blueskylaw says:

    If the state wants the tax bad enough, they will find a way to collect
    “something”, after all, the state has a lot of “smart” cookies working for them.

  4. JohnDeere says:

    everything online should be tax free. to make up for the shipping and the long ass wait.

    • cromartie says:

      I’ll disagree with you, slightly.

      The state that should charge the sales tax, which pays for the infrastructure of the B&M distrubution of the product, is the state or states in which the online retailer houses the operations that enable them to do business.

      If I buy something from Amazon, the sales tax for it I should be charged should be the state from which the item is shipped. That state’s infrastructure is impacted by the act of the item being selected, packaged and shipped to me, therefore that state’s sales tax should be the one I incur.

      I live in Ohio, but I purchase a product that is stored, shipped and distributed from Washington. I should pay Washington sales tax, not Ohio sales tax. Ohio does nothing in this transaction except house my residence. Washington is where the product’s “B&M” infrastructure is sustainably impacted.

      That’s the difference, at least in my mind.

      • rmorin says:

        So wherever the good is used/consumed should be the tax rate in your mind? Funny we already have that an it’s called a use tax.

        But lets look at your flawed collect at POS logic.

        So If I live in MA and drive to NH, which is tax free, and buy an item you are saying that the store should demand to know my state of residence or not sell to me, lest it not be NH? After all, I am bringing it for use back in MA.

        Let’s go further. If I travel to NY, which has different sales tax, should I be able to say “Nah, I’m gonna bring this to MA, I’m not gonna pay NY sales tax just the MA rate?”

        Me thinks you are not privy to the basic tenets of the constitution. Under your flawed logic every store would need to verify your state of residence before selling to you. Not good.

    • deathbecomesme says:

      Amazon Prime! Signed up for the Student Account at half price 3 years ago and haven’t looked back. I pay full price now and it is worth it. Free 2 day shipping and next business day shipping for only $4 more. I got a 50lb+ bookshelf shipped via UPS Next Day for $4. Try that anywhere else and you will pay an arm and a leg for shipping.

  5. SmokeyBacon says:

    I don’t understand why Illinois is being so ridiculous and trying to force them to collect tax when the law here is that if you don’t pay taxes when you make the purchase you have to pay the use tax when you file your annual tax return anyway. And come on, we are in Illinois so I am sure that everyone follows the great examples of our state government and follows the law to the letter!

    • Captain Spock says:

      HAH!

      Illinois would have to subpoena Amazon or My credit card to get the information on how much I spent, in order to go after me for this… This will not happen.

      • Ophelia says:

        When e-filing, I had to either choose a general (percentage based on income) value for the use tax, or enter in actual numbers – I suppose I could have lied and said “0”, but I would think that would put you at risk for audit.

    • coffee100 says:

      Use tax is unconstitutional. Article I Section 9

      • Such an Interesting Monster says:

        Use taxes are 100% constitutional. That’s the sole reason they exist, to get around the interstate sales tax restrictions.

  6. Bob says:

    Here’s the thing. The whole argument for collecting sales tax is based on the fact that local brick-and-mortar shops feel like they’re at a disadvantage because they have to charge more for their products when tax is figured in versus no tax from sellers out of state online. So if I have a shop in Illinois, yes, my products will be more expensive if I’m selling to only local Illinois shoppers. BUT, while I may be losing out on local Illinois customers who are making purchases from other states online, I too can sell my stuff online to other states, and the people in those other states can buy from me and avoid their own local sales taxes. So instead of selling, I dunno, 50,000 units of whatever to people in my home state, I can still make up those sales if I just decide to branch out and sell online. In the end it’s a wash, so who cares? I can make 50,000 sales still, it’s just to a different group of people. It’s the brick-and-mortar businesses that refuse to make that jump to selling online that have the problems competing. If you’re losing customers to online sales, then maybe you should branch out and try to capture them with some online sales of your own, hmmm?

    • MrEvil says:

      Seriously, if you’re so damned butt-hurt about online sales scavenging your B&M sales, put up your own website and start selling online too. You don’t have to be a computer expert to setup a website with a shopping cart and your existing credit card processor can work with your website. All you’d need to do beyond that is prep for shipping (which you could easily do in an hour or two each day.)

    • dangermike says:

      Blatantly stolen from wikipedia:

      “The significance of the Commerce Clause is described in the Supreme Court’s opinion in Gonzales v. Raich, 545 U.S. 1 (2005):
      The Commerce Clause emerged as the Framers’ response to the central problem giving rise to the Constitution itself: the absence of any federal commerce power under the Articles of Confederation. For the first century of our history, the primary use of the Clause was to preclude the kind of discriminatory state legislation that had once been permissible. “

      The notion of one state charging tariffs on another (which, due to the protectionism argument presented, is undeniably the purpose of such taxation) just completely flies against one of the major revisions to the structure of government that prompted the replacement of the Articles of Confederation by the United States Constitution. Challenging interstate sales tax schemes in court will necessarily result in them being struck down. Taxation on interstate commerce are the sole domain of Congress unless the Constitution is revised to distribute the right to states. Period.

  7. u1itn0w2day says:

    What’s going to happen is the states will start issuing a form or include in their state tax form telling to you to list all of your online purchases and sales to collect unpaid tax . Most will ignore it. The states will stick theiir nose into your business more than the feds.

    They should just have somekind of generic tax for shipping stuff across state lines which would supercede any state or local tax. Not necessarily more but that’s the tax you would pay for onlline transactions.

    • nickmoss says:

      There is a line on almost every state income tax form where this tax is to be reported. It is called a use tax rather than a sales tax.

      • Captain Spock says:

        Good point, but most people don’t know the information on how much they spent, or don’t care enough to check. The state cannot get the records on what you spent in order to bill you for it, so what incentive is it for the average tax payer?

    • NotATool says:

      They already do require this in Illinois, and have done that for at least the last 20 years. It’s called Use Tax.

  8. Portlandia says:

    My biggest issue with this is that the states are trying to take the easy way out. The real ‘issue’ here is that people buying taxable goods from out of state are not reporting them and are not self-assessing sales tax as they should (not that I ever have). It’s far easier for the state to go after one massive retailer than it is for them to go after millions of consumers.

    The unfortunate next step in this case might be states requesting purchase information from places like amazon and then sending out letters to every consumer who made purchases and requesting sales tax. I don’t think this would be legal either, but don’t think they wont try!.

    • DoodlestheGreat says:

      I have to agree. It would be the only logical step if the states can’t force the online retailers to do it for them.

      Strangely enough, I don’t have a problem paying a sales tax to the state I live in for purchases I make online. Even with tax, the cost is usually much cheaper and the variety of goods available is much greater. The trouble is that once you get to the state level, you’ll inevitably have to look at the local level as well, and that’s a complication that would drive most online retailers batty to have to keep up with. There would need to be a centralized database that could track all the variations (state, county/parish, city, etc.) that retailers could access to get the proper information, probably tied to zip codes, and that database would have to be kept up-to-date constantly. That would be a nightmare.

      • Portlandia says:

        Well, calculating the taxes isn’t really that difficult. I’ve had to prepare sales and use tax returns (self assessment returns) for multiple states including CA (what a pain!) and there is software programs available that supply you with a sales tax rate based on city/county which take the hassle out of the calculation. They’re updated as rates change and makes the process a lot easier.

        The problems is that one state can’t force a retailer in another state to do something. That retailer must have a business presence in the state otherwise the business is outside of that state’s jurisdiction. Nor can one state say, you must collect sales taxes in all other states.

        I live in Oregon now and we have no sales tax, so this isn’t really an issue for me but I also live right across the border from WA and one of the Best Buy stores that are closing is one on the Washington Side of the border because the two (5 miles apart) are just on the other side of the Oregon border. People are driving a few extra miles to buy everything without sales tax. I don’t blame them!

    • u1itn0w2day says:

      The state or local government will be all up in your business more than ever. People cry about the feds but alot of local governments and states go after taxes much more aggressively. In these times they get down right petty and will try anything for a buck. They might not care but most government workers know where they’re paycheck comes from. They have a union sense of entitlement.

  9. InsertPithyNicknameHere says:

    The idea that it is Sales tax that makes a difference whether I shop at a B&M or online is ludicrous. Base prices are often lower online, and there are some things that I simply cannot get without shopping online. A number of online retailers that I buy from are located somewhere in Illinois, so I still pay the sales tax. And those that aren’t, I now pay Use Tax when I file my return.

    Regarding Use Tax in Illinois, though, I’ll be honest – I didn’t know and had never heard of it until last year when I filed my taxes. I don’t think that the Illinois state government did a very good job communicating that those taxes are still owed. So, I’m going to put at least some of the blame on them.

  10. Back to waiting, but I did get a cute dragon ear cuff says:

    If they are arguing that the Affiliates are the in state presence, doesn’t that mean that

    1) The Affiliates are responsible for collecting, reporting and submitting sales taxes to the state on sales made through them?

    2) Any sales not through Affiliates did not take place with an in state presence, so those are not taxable.

  11. u1itn0w2day says:

    45 states that have a sales tax also have a ‘use tax’ on out of state and/or online purchases. Not self reporting these transactions will make many consumers tax evaders/criminals for buying something online.

    http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2010/08/sales-tax-use-tax-and-internet-purchases.html

  12. Nobby says:

    Now if the same Cook County judge would review Chicago’s infringement on another Constitutional right that’s protected by the 2nd Amendment…

    • Deep Cover says:

      YAWN….every STATE infringes on the 2nd amendment…EVERY SINGLE ONE OF THEM. If they did not then ordinary citizens would be able to own a nuclear bomb.

      Don’t bang on Chicago just b/c they have strict gun control laws. If “arms” didn’t have the right to be regulated everyone would have the right to tote loose nukes on the street every day.

  13. gafpromise says:

    Thank you thank you for that last paragraph. Yes the state will try to collect sales tax from you if the retailers don’t. I was quite taken aback on my IL state taxes last year when they required me to either show receipts documenting all my online purchases and tax paid on them, or pay some flat amount. I can’t remember the dollar figure but it wasn’t trivial. If states can’t get the retailers to collect sales tax, they just come after consumers directly.

    • InsertPithyNicknameHere says:

      If you couldn’t give a value for your Use Tax, the estimated use tax is based on your Adjusted Gross Income. There’s a table to verify how much you owe, but it works out to between 0.05% and 0.09% depending on your AGI. For example, if your AGI was $30,001 – $40,000, your Use Tax was $21. So, not a tiny amount, but not exactly huge.

  14. Geekybiker says:

    Waaaaa? Cook county has a long and glorious history of flaunting the constitution and willfully ignoring SCOTUS decisions.

  15. Quake 'n' Shake says:

    I love how some politicians love to criticize businesses for being “greedy.” Yet, they pull the same shit when it comes to collecting taxes, most of which are not for basic services (as those are already covered), but rather to fund pet projects and entitlements in order to buy votes.

    • u1itn0w2day says:

      Buying votes by keeping their vote getters/free campaign workers called government employees employed.

  16. partyone says:

    We must protect our brick and mortar book stores, ban e-books! Let’s end the digital era. Bring out your printing presses let’s spread the word!
    Viva la revolucion!

    /sarcasm btw

  17. lovemypets00 - You'll need to forgive me, my social filter has cracked. says:

    Well, I owe the Commonwealth of PA about 90 cents from last year’s calendar purchase on Amazon. I misread the instructions in the PA 40 book, and thought it applied to purchases over $1000. No, I’m not mailing a check.

    I’m trying to keep track of online purchases this year, that would be taxable under our weird tax code. For instance, most clothing isn’t taxable here, but in other states it is. So far, I have purchased under $100 online that wasn’t taxed. A small amount – and what does it cost the state to keep track of this, and hassle me about it?

  18. teqjack says:

    Again, the law was too broad. Amazon has agreed to collect/report in some States – those which have agreed to limit requiring/enforcing to vendors with over $500,000 in sales. IL included all sellers: for many small vendors, complying would cost far more than even what they charged, never mind counted as profit before this law,

  19. AllanG54 says:

    Price is the whole argument. I bought something on line the other day for $150. The least expensive I saw it in B&M was about $190 + tax so even with the exorbitant $16 shipping fee I still saved about $30. And the product was shipped FedEx ground so I won’t even have it for another 4 days.

  20. Southern says:

    I don’t even see why this is an issue, honestly, The Constitution specifically says that Interstate goods are not taxed by the seller. Period.

    Do B&Ms have reason to complain (due to making it harder to compete)? Sure they do.
    Do States have reason to complain (due to lack of tax income)? Sure they do.

    So change the Constitution.

    Oh, not enough support for that (from the people)? Too bad.

  21. joako says:

    I live in the (not so) great state of Florida. I place orders from Amazon. Some of these orders ship out from Jacksonville, FL. How can Amazon not charge tax for these orders?

  22. Levk says:

    so.. in order to collect sales tax from amazon.. they lost sale taxes from stores.. how nice and smart what is next giving criminals money so they can spend it on hookers.. oh wait.. they did that already with banks.. but may as well do it at state level as well