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March 14 2011

Illinois Internet Tax Hurts State Businesses, Nonprofits

Illinois' new Internet Tax, euphemistically termed the "Mainstreet Fairness Bill," has already created negative, unintended consequences, hurting the state's 9000 online affiliate businesses and nonprofits. Rather than collect sales tax revenue from online sales made by Illinois businesses, the intended outcome, Illinois businesses and nonprofits are estimated to lose at least 25% of their income as online outlets such as Amazon.com are dropping them as affiliates.

Meredyth Richards, President of the Chicago Young Republicans, explains:

The new legislation requires internet stores, even those without a single outlet in the state, collect and remit taxes for all sales made through their Illinois-based affiliates. Doing so purportedly levels the playing field between brick-and-mortar businesses who must tax purchases and their untaxed online competitors.   But more than merely increase the cost of living for Illinoisans in yet another way, the law also has unfortunate consequences for non-profit and philanthropic organizations. Immediately following the bill's passage Amazon.com notified its Illinois affiliates that as of April 15th their contracts with the Amazon Associates Program will be terminated. 

The all-volunteer group I lead, the Chicago Young Republicans, received this notice, making us one of the thousands of affiliates unable to use online Amazon advertisements as a fundraising tool. No longer will purchases linked from our website made on Amazon.com (and any of our other advertising partners that inevitably choose to end relations in Illinois) support our 1,000-member organization. 

While discontinuing the advertising program has relatively little total impact on Amazon in particular  - affiliates contribute less than 10% of the site's overall sales - it matters greatly to businesses dependent on out-of-state internet retailers for their income or, as in our case, for help fundraising.   

More and more states are beginning to think of "innovative" ways to deal with the budget crunch. And by "innovative" I mean, ways that are much less visible than increasing sales or income taxes. Increasingly, the internet is being targeted as a cash-cow for distressed states.Wireless taxes are at an all time high and increasing, exceeding sin taxes in many states. These taxes on cellphones and wireless internet service are twice as high as most state income and sales taxes, averaging over 16 percent nationally.

Illinois just seems to have miscalculated the likely effect of its new internet tax. Rather than act as tax-collectors for the state, oulets such as Amazon.com are dropping their Illinois affiliates. This is bad news for Illinois' tax-revenue-growth dreams, but even worse news for the 9000 Illinois businesses and nonprofits no longer able to do business using these online outlets. 

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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