It wasn’t all that long ago when income tax was the main topic of conversation in the world of tax. Especially in Illinois, once the national debate over the Bush tax cuts ended, we got the new debate about Illinois raising its income taxes. But now, sales tax is definitely the main issue, specifically the ability of states to tax online companies who don’t have a physical presence in that state.
The current centerpiece of the debate is an affiliate tax, often called the Amazon Tax. The prototype law was passed in New York in 2008. To date five states have passed similar laws (New York, North Carolina, Rhode Island, Illinois and Connecticut) and Colorado passed a slightly modified law. Amazon Tax bills have come up in some two dozen states and that list seems always to be growing larger.
The important context for this debate is a 1992 Supreme Court decision that has laid the ground rules for sales tax on out of state companies ever since. The key issue is nexus. Nexus means all the connections between a company and a state. Having a store in the state is sufficient nexus for the state to collect sales tax. Simply selling to in state residents is not.
The affiliate tax laws say that having affiliate programs with state residents constitutes sufficient nexus and thus allows the state to collect sales tax. In practice, however, this has meant that affected companies simply cut their ties with affiliates rather than charge their customers sales tax.
A national solution to the debate has been proposed, but there has been surprisingly little motion toward such a resolution in the past month and a half. Just before Tax Day Senator Dick Durbin (D-IL) announced intentions to submit a bill that would allow states to collect sales tax on online transactions, but that bill has yet to surface in the Senate.
For more on this or other tax related legal concerns, contact the Chicago attorneys at Horowitz & Weinstein.