How to Empty Fat Wallets

by Kristina Rasmussen Earlier today I testified at a House Revenue committee hearing on the matter of online taxation. Up for consideration was SB 3353, and more broadly, the hearing served as a review of attempts to use online affiliates of Internet retailers to establish physical nexus for taxation purposes. So what’s at stake? Some want to impose so-called...

by Kristina Rasmussen

Earlier today I testified at a House Revenue committee hearing on the matter of online taxation. Up for consideration was SB 3353, and more broadly, the hearing served as a review of attempts to use online affiliates of Internet retailers to establish physical nexus for taxation purposes.

So what’s at stake? Some want to impose so-called “Amazon.com” taxes on Illinois-based online affiliate marketers. States including New York, North Carolina, and Rhode Island have passed laws that included online affiliate marketers—web sites that host banner ads for another company—as part of what constitutes physical presence for a company within a state. This matters a great deal in who is responsible for collecting state sales taxes.

The practical result of laws like SB 3353 is that vendors like Amazon.com and Overstock.com drop advertising relationships with in-state advertisers, hurting local operators’ revenue streams. Illinois affiliates face the very real threat of being dropped should the state pursue legislation like SB 3353, as the obligation of calculating and collecting Illinois’s state and various local option sales taxes for out-of-state retailers would be immense. This loss of commerce for Illinois affiliates represents a direct threat to state income tax collections, as affiliates cannot pay income taxes on revenues they do not earn. Tax Foundation has more information on this issue, if you’d like to dig deeper.

Policy changes lives. Consider FatWallet.com, based out of Rockton, Illinois. The company describes itself as “a popular online resource for millions of shoppers to compare, share and find thousands of the latest deals, coupons and retailer discount offers.”

A representative from FatWallet.com testified against SB 3353 today, noting that its passage would mean “goodbye Illinois” for his company and its jobs. That would be a crying shame, as FatWallet came in at #20 of the best small companies to work for in America.

Yes, Illinois does face an ongoing budget crisis. State leaders should be focused on paring down expenditures and on policy changes that remove — not create — government barriers to business.