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]