Illinois Supreme Court strikes down “Amazon tax law”

The Illinois Supreme Court today struck down the  state's 2011 ''Amazon''  law requiring out-of-state internet sellers with web marketing affiliates in the state to collect Illinois sales taxes on deliveries to the state's residents.

The law was on the lines of a similar law passed by New York in 2008 - a law that the New York Court of Appeals, the state's highest court, upheld in a 4-1 decision in March.

Petitions have been filed by both Amazon.com and Overstock.com calling for a review of the New York decision by the US Supreme Court.

While the Supreme Court had not said whether it would hear the New York case, the fact that two states' high courts had reached opposite conclusions increased the chance it would do so, observed David C Blum, a Chicago lawyer who tracked the internet sales tax issue, told Forbes. 

He further noted that the Illinois Department of Revenue, the loser in today's decision, could also ask the US Supreme Court to step in.

The US Supreme Court had last considered the issue  of whether remote sellers must collect a state's sales tax, in 1992, while ruling, in a case involving a catalogue seller (Quill v/s North Dakota), that under the commerce clause of the constitution, only merchants having a physical presence in a state could be required to collect sales taxes for that state.

It was pointed out by the high court however, that Congress could grant collection powers to the states.

The Supreme Court of Illinois deferred to federal law yesterday as it ruled, the state's so called "Amazon tax law" was unconstitutional.

The court upheld earlier rulings by the Circuit Court of Cook County on the law that was aimed at evening out the sales tax between online firms and brick-and-mortar companies that complained their online competitors had an unfair price advantage in not having to charge sales tax.

States have been trying to work around the concept of sales tax applicability only to companies having a physical presence in their state.

Many states had tried extending the definition of having a physical presence in the state by including business affiliates.

Internet retailers for instance, could have operations and offices in one state, but affiliate themselves with local companies of other states that offered web links back to Amazon.

"Because we agree with the circuit court's conclusion that the relevant portions of Public Act 96-1544 are preempted by federal law, we affirm the judgment of the circuit court," the Supreme Court said in a 22-page ruling.