The Performance Marketing Association (PMA) filed a lawsuit against the Illinois Department of Revenue today, challenging the constitutionality of its recently passed law which aims to extend the state’s tax nexus to include a retailers affiliates (publishers) should there be no physical presence for the retailer in that state.
The law (often called the Amazon Tax or the Mainstreet Fairness Bill) requires out-of-state retailers who use Internet-based performance marketing (affiliate marketing), but not other forms of advertising, to collect Illinois state sales and use tax. The result in Illinois has been well publicized – losing a few high profile web properties to neighboring Wisconsin. The PMA’s complaint aims to demonstrate how the Illinois law discriminates against Internet-based performance marketing, in violation of the federal Internet Tax Freedom Act.
“HB 3659 is a calculated assault on the burgeoning performance marketing industry and a misguided attempt by the state legislature and Governor Quinn to shore up the state’s budget deficit on the backs of small business,” said Rebecca Madigan, Executive Director of the PMA. “We’re striking back at a law that not only unfairly targets our industry but also would arbitrarily broaden the state’s definition of nexus. That’s a direct violation of the Commerce Clause and flies in the face of decisions already established by the Supreme Court.”
According to the PMA, Illinois-based affiliates number at least 9,000. In 2010 these affiliates generated $744 million in advertising revenue. The PMA is arguing that if HB 3659 takes effect on July 1 as scheduled, Illinois affiliates will be in jeopardy, as will the $22 million in state income tax they generate annually.
The reason is that out-of-state retailers may avoid the new affiliate nexus tax by terminating their relationships with affiliates. In fact, since the law was enacted in March, many retailers, including Amazon.com and Overstock.com have already severed their relationships.