|EcommerceBytes-NewsFlash, Number 2556 - June 02, 2011 - ISSN 1539-5065 1 of 5|
The Performance Marketing Association (PMA) filed a lawsuit against the Illinois Department of Revenue on Wednesday challenging the constitutionality of the newly enacted law that requires out-of-state merchants who advertise on affiliate websites in Illinois to collect sales tax.
PMA said there are at least 9,000 Illinois-based affiliates including bloggers, non-profits, home-based businesses and small businesses with dozens of employees that generated $744 million in advertising revenue last year.
Since the law was enacted in March, retailers including Amazon.com and Overstock.com have already severed their relationships, and PMA said if HB 3659 takes effect on July 1 as scheduled, Illinois affiliates will be in jeopardy, as will the $22 million in state income tax it estimates are generated annually from the affiliates.
PMA said there are over 200,000 online affiliates operating nationwide. It explained the affiliate model as follows:
"Performance marketing is an advertising model whereby an independent affiliate receives a referral fee or payment from an online retailer when visitors to the affiliate's website use links and banners to navigate to and subsequently purchase products on the retailer's site. Affiliate marketers do not sell products or collect money from consumers. Affiliates do not deliver products or services, and there is no ownership or business relationship between affiliates and merchants beyond a limited advertising agreement."
The PMA said it filed its complaint with the United States District Court for the Northern District of Illinois on behalf of its members in an effort to reverse the effects of the Illinois affiliate nexus legislation and to deter other states from enacting similar measures.
According to the PMA, HB 3659 exceeds the limits of the state's power to regulate interstate commerce under the Commerce Clause, as established in the 1992 Supreme Court ruling in Quill Corp. v. North Dakota, which declares that a state cannot impose a sales or use tax collection obligation on a company if the company does not have a physical presence in that state.
Additionally, the PMA believes the law discriminates against electronic commerce in violation of the Internet Tax Freedom Act, which states that Internet sales cannot be discriminated against through tax obligations that apply only to online transactions.
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Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to firstname.lastname@example.org.
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