Affiliate Marketing Tax Controversy in Illinois

In Illinois — one of the most populous states in the U.S. — the online business world has been up in arms about new affiliate tax laws that have led Amazon.com to withdraw its affiliate program from that state’s market.
State lawmakers passed the legislation on March 10 that requires sales tax to be collected “by retailers on goods sold there, even if those retailers’ presence in the state is solely online,” writes Emily Wilkinson at ReveNews. “This is the first time since 2009 that the Affiliate Nexus Tax law has been enacted and response has been swift.”
Amazon.com announced the departure of its affiliate program from Illinois the next day, effective April 15. And that’s caused market turmoil as other companies like Barnes & Noble, Sears, and Wal-Mart race to take Amazon’s place with high-converting affiliates.
“The move will affect some 9,000 Amazon affiliates in the state who earn commissions when consumers click through links on their websites to purchase items on Amazon,” writes Mark Hefflinger at Digital Media Wire.
A new trend?
It’s not the first time this has happened, and the trend is worrying. Colorado, Rhode Island, and North Carolina have also been abandoned by Amazon.com because of Internet taxation.
“The company has also said it will sever ties with over 10,000 affiliates in California, should that state pass a similar law,” Hefflinger adds.
So, in an echo of the online gambling industry, the Internet sales tax issue is one that federal lawmakers have avoided, thereby leaving it up to state governments to legislate.
Affiliate outrage
A large section of the business community has engaged in fighting the new tax, with an onslaught of press releases and editorials written condemning it.
“Governor Quinn has spoken unequivocally that the growing, innovative, job-creating industry known as Affiliate Marketing is entirely unwelcome in Illinois,” Brian Littleton, CEO of ShareASale, said in a press statement. “This is directly contrary to actions he took just a few weeks ago during his budget address when he announced the creation of the Illinois Innovation Council to address job growth in the tech community.”
“We had opposed this new tax law because it is unconstitutional and counterproductive,” Amazon representatives told their Illinois associates in an email, per CNET. “It was supported by national retailing chains, most of which are based outside Illinois, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that its enactment forces this action.”