An organization that represents online affiliates filed suit in federal court this month challenging the constitutionality of a new Illinois law targeted at collecting sales tax from Web retailers. Internet retail giant Amazon.com has threatened to cut off its marketing affiliates in Illinois in an effort to avoid paying the tax, and other companies are threatening similar action. We have previously examined the potential effects on affiliates of this type of state tax.
Internet retailers cite a 1992 Supreme Court decision, Quill Corporation v. North Dakota, which ruled that states could require only companies that had a physical presence within the state to act as a tax collector. Online retailers have used this ruling to justify the payment of taxes only in the few states in which they have a physical presence.
The suit claims that the Illinois law goes beyond the state’s power to regulate interstate commerce, since the state legislature seems to be taking the view that an online retailer, with no physical presence in the state, establishes a presence in Illinois merely by advertising on websites owned by Illinois affiliates.
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