What the Strike Down of the Amazon Tax Law Means for Illinois Affiliates

illinois amazon tax

How states should tax Internet sales is without doubt one of the hottest issues in state legislatures today, as cash-strapped states look to shut perceived loopholes and put additional cash of their coffers.

Over the past few years, several states along with California, Ny, North Carolina, and Illinois, have passed laws requiring out-of-state retailers to gather sales taxes on purchases made by customers within the state, whether the merchant has a physical presence inside the state or not.

The laws particularly affect large online merchants like Amazon.com and Overstock.com, who previously had not charged sales taxes.

On September 18, Illinois’ Amazon tax law that required online businesses to gather state sales tax on purchases made by Illinois residents was invalidated in a 6-1 ruling by the Illinois Supreme Court.

According to the Performance Marketing Association (PMA), the plaintiff who filed the lawsuit, there have been approximately 9,000 Illinois-based affiliates in 2010, generating greater than $744 million in advertising revenue. After the law took effect in 2011, out-of-state retailers, along with Amazon.com and Overstock.com, terminated their relationships with Illinois affiliates which will avoid the recent sales tax obligations.

According to PMA, one-third of peers left Illinois due to the ruling, and the alternative two-thirds either downsized or went into bankruptcy altogether.

Now, out-of-state merchants can reinstate their advertising agreements with Illinois-based affiliates. Once large merchants like Amazon and Overstock reinstate their relationships with Illinois companies, it will likely be time for any displaced affiliates to head back to Illinois.

If you’re taken with starting an affiliate business in Illinois, below are the stairs had to make your corporation legit:

1. Incorporate Your Business

Over the past two years, an Illinois-based company would have to incorporate in another state (along with Delaware, Nevada, and Wyoming). However, now it’s recommended for a small business affiliate (“small” is defined as under five shareholders) physically based in Illinois to include or form an LLC in Illinois.

That way, you don’t have got to take care of the added fees and paperwork linked to operating “out of state” (i.e. if you happen to incorporate in Delaware, but have a physical presence in Illinois).

2. Establish a Federal Employer Identification Number (EIN)

You’ll ought to obtain a tax ID number from the IRS in your new company. You may apply in your EIN online throughout the IRS site.

3. Open a Business Checking account in Illinois

Once you’ve your enterprise/LLC established and feature an EIN, you may arrange a business checking account to your affiliate business, and start to receive payments under your enterprise name.

4. Get Any Necessary Local Business Licenses

Don’t forget to use for any local business licenses from the town or county where you’ve established your new business.  

If you’re an existing Illinois-based affiliate who can have moved out of state after the 2011 law went into effect, you might want to consider moving your enterprise back to Illinois. As a result, it would be best to dissolve the corporation/LLC inside the other state after which establish a brand new business in Illinois.

Please confer with your CPA to determine the most productive timing for this action by way of tax implications. Fortunately, it’s relatively quick and painless to incorporate your new company online once you’re able to achieve this.

If you aren’t located in a state currently suffering from the Amazon sales tax law, you may still keep a detailed eye in your state’s legislative activity.

Court Photo via Shutterstock

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