Small Business

When to Collect Sales Taxes Online

By Ross Miller, Director,
Illinois Small Business Development Center

 

Governor Quinn signed into law HB 3659 in March.  This law will require online retailers that have affiliate programs and sell more than $10,000 of product to Illinois residents to collect and remit sales tax to the State of Illinois.  Illinois is not the only state to have this type of law.  Currently, New York, Rhode Island, North Carolina, and South Dakota also have these types of laws in place.  Eight other states have similar bills working through legislatures.  Colorado’s law states that sites selling over $10,000 per year must collect sales tax or send customers an annual notice of the amount of tax they owe to the state for their purchases.

Most of the current laws focus on sales from eCommerce sites that use affiliate programs.  According to the 1992 Supreme Court ruling (Quill v. North Dakota), states can only require companies to collect sales tax if they have a physical presence, or “nexus”, in the state.   States are defining these affiliate programs as the “nexus”.  

If an eCommerce site is currently running an affiliate program in New York, Rhode Island, North Carolina, South Dakota, or Illinois, they will need to register with the Department of Revenue in that state to be able to remit the sales taxes collected.  The alternative is to wait for the State to take action against the site and pay the sales tax plus fines and interest.

The response from the major retailers to the Illinois law has been swift.  Amazon.com has eliminated their affiliate agreements in Illinois as of April 15 and Overstock.com’s agreements ended on May 1.  This could foretell the end of the affiliate program industry.  The Direct Marketing Association has been active in lawsuits in New York and Colorado to protect the eCommerce sites.  Expect to see more legal action soon.

If you have questions about eCommerce or sales taxes, please call for one-on-one counseling.  Contact Ross Miller at (309) 677-2992 or illinoissbdc@bradley.edu.