Illinois Government Cash Grab Proves Taxing For Online Retailers
No one likes the tax man, but in Illinois, the state the government is looking to give him a far larger online effect by requiring any businesses with a "physical presence" in the state to collect and remit sales tax.
Governments have to deal with an increasingly Internet-savvy citizenry, many of which realize that they can get better deals shopping online and avoid in-store lineups and hassles. Along with these smart consumers come smart companies like Amazon, ones that realize by not physically locating their offices in certain areas they can operate tax-free when selling online.
Illinois governor Pat Quinn has taken issue with this idea and now signed into law what is known as the "Main Street Fairness Act". In the act, any business must collect and remit state taxes if it has a "physical presence" in the state.
But how could this affect massive online retailer Amazon, who doesn't maintain any offices in the state of Illinois?
By expanding the definition of "physical presence" to mean more than just a warehouse or corporate office and having it include affiliate companies - often coupon sites or deal-a-day web pages that get commission from directing traffic to sites like Amazon - Illinois has effectively forced any online retailer that has ties in the state to start paying taxes like everyone else.
Both Amazon and Overstock have said they will be cutting ties with their affiliates in Illinois in order to avoid these taxes, and its no surprise - they hardly need these smaller companies on board to continue operating.
The Illinois government has a point here; a company that operates in the state but doesn't pay taxes gets an advantage over brick-and-mortar retailers, but the new law may backfire on them. Smaller online businesses in the state may simply move or go out of business entirely when Amazon and Overstock leave and if the law means higher prices for online shoppers the government may face a consumer backlash.
Many state governments are feeling the pinch after the recent economic downturn but taxing online retailers and their affiliates may not result in the rewards Pat Quinn is apparently hoping for.