As a resident and affiliate living in Illinois, I have been following the state’s Affiliate Nexus Tax or “Amazon Tax” with some interest. I was one of the first sites to publish the news, reported the governor signing it into law, covered the federal and circuit court lawsuit brought against Illinois regarding the tax, reported one State Representative’s attempt to repeal, and discussed the issue with my state rep’s office.
The news continues with the latest chapter in the story. Illinois Circuit Court Judge Robert Lopez Cepero rules the Illinois Affiliate Nexus Tax law violates the Commerce Clause of the US Constitution.
Judge Lopez Cepero ruled the law unconstitutional on two grounds: 1) it violated the Commerce Clause of the United States Constitution, which limits what entities a state can tax; and 2) it conflicted with the federal Internet Tax Freedom Act, which prohibits states from directly targeting and taxing internet commerce.
Regarding the Commerce Clause, Judge Lopez Cepero said that the state failed to establish that the retailers maintained the requisite “nexus” or connection to Illinois commerce necessary to tax out-of-state retailers. Traditionally, in order for Illinois to exercise its taxing power over a foreign company that company must have some physical presence within the state, whether it be an office, a factory or even salesmen who pitch the company’s products directly to residents of Illinois.
What does this mean for the Affiliate Nexus law, the state, and affiliates in Illinois? We will have to see. Amazon has not rushed back into the state and the Amazon Associates site still states that “Residents of illinois are not eligible to participate in the Associates program.” The state of Illinois is looking at their options to appeal, of course and we will have to watch and see as cases in Arkansas, Colorado, Connecticut, Illinois, North Carolina, and Rhode Island may finally combine into a case heard by the Supreme Court.