By Hannah Meisel
* Still no decision in Janus v. AFSCME today (though the justices will be back with more opinions tomorrow), but the U.S. Supreme Court’s ruling in South Dakota v. Wayfair opens the door for Illinois to collect sales taxes from more out-of-state online retailers.
Luckily, the General Assembly doesn’t have to wait for Veto Session to implement a law to capture the revenue; the language was already in the Budget Implementation bill that passed with overwhelming majorities and was already signed by Gov. Rauner earlier this month.
COGFA estimates the tax could bring in $150 million in FY19 — not an enormous windfall, but nothing to sniff at either.
The language in the BIMP expands the state’s 6.25 sales tax to out-of-state retailers who do $100,000 or more worth of business annually in Illinois (or 200 or more annual transactions here). If businesses reach that threshold, they are considered to be “maintaining a place of business in this State” and required to collect and remit the taxes.
A standalone bill aimed at capturing the revenue, SB 2577, passed the Senate 39-10 on April 17 — 2018’s Tax Day — but never got past First Reading in the House.
It’s important to note that about 80 percent of out-of-state retailers are already paying sales taxes here. But proponents say the BIMP bill language and the Wayfair decision will help Illinois capture the remaining 20 percent.
In 2011, lawmakers approved what became known as the “Amazon tax,” which taxed online retailers if they had marketing affiliates in Illinois that generated more than $10,000 in business annually in “click-through agreements.” But the law also forced retailers like Amazon to collect Illinois sales taxes even if the customer wasn’t an Illinois resident or if the affiliates site was not hosted on a server based in Illinois.
The Illinois Supreme Court struck down the law in 2013, finding it unfairly discriminated against electronic businesses under the federal Internet Tax Freedom Law because entities like newspapers or radio broadcasts were not likewise taxed.
* From today’s opinion, striking down a 1992 Supreme Court ruling in Quill Corp. v. North Dakota…
The Internet revolution has made Quill’s original error all the more egregious and harmful. The Quill Court did not have before it the present realities of the interstate marketplace, where the Internet’s prevalence and power have changed the dynamics of the national economy. The expansion of e-commerce has also increased the revenue shortfall faced by States seeking to collect their sales and use taxes, leading the South Dakota Legislature to declare an emergency. The argument, moreover, that the physical presence rule is clear and easy to apply is unsound, as attempts to apply the physical presence rule to online retail sales have proved unworkable.
* Reaction from the Illinois Retail Merchants Association CEO Rob Karr…
“We are very pleased with the Supreme Court’s ruling to allow states to collect internet sales tax. This ruling replaces the pre-Internet ruling that was determined by lower courts to prohibit states from requiring internet retailers to collect sales tax. As IRMA has long argued, regardless of where a sale occurs, a sale is a sale and sales tax should be applied. This ruling will ensure that main street retailers – who employ your neighbors, pay property tax and support local programs – are able to compete on a level playing field with out-of-state retailers that use our roadways and other services, but up until now, did not contribute anything to Illinois’ economy. This decision also protects Illinois consumers who have been liable for the sales taxes remote sellers refused to collect.”
* In the days after signing the budget, Gov. Rauner repeatedly touted the fact that the FY19 budget had “no new taxes.” I asked the Governor’s office whether the Wayfair ruling’s activation of the BIMP language throws a kink in that narrative.
*** UPDATE 1 ***
* Statement from Rep. Dave McSweeney (R-Barrington Hills), one of a handful of lawmakers from both Chambers who didn’t vote for the budget.
“It’s bad enough that the Madigan-Rauner budget includes the revenues from the 32% tax increase in the income tax rate. We now find out that the budget includes a tax increase on Illinois citizens made possible by the Supreme Court online sales tax ruling. I’m glad that I voted against this unbalanced ‘budget’ that contains the status quo of high tax policies in Illinois.”
*** UPDATE 2 ***
* Heard back from the Governor’s office. They do not consider the BIMP bill language activated by the Wayfair ruling a “new tax,” as the sales tax has been on the books for years.
*** UPDATE 3 (by Barton) ***
From the Dept. of Revenue…
Director Beard is very pleased that the United States Supreme Court overturned the 1992 decision in Quill and recognized that the physical presence requirement of Quill does not reflect the 21st century marketplace. To be clear, this is not a new tax. Illinois residents are already obligated to pay a Use Tax on out-of-state purchases and this prudent decision will allow states the ability to enforce Use Tax laws that are already in existence, bringing in an estimated $200 million in new State revenue for Illinois annually. With this decision, we level the playing field for Illinois brick and mortar retailers.
Public Act 100-0587 Background:
Illinois Public Act 100-0587 adopts the same standards as South Dakota for out-of-state-retailers to collect Use Tax on sales to state purchasers. The Act provides that, beginning October 1, 2018, an out-of-state retailer making sales of tangible personal property to purchasers in Illinois will be required to collect Use Tax if its cumulative gross receipts to purchasers in Illinois are $100,000 or more; or the retailer enters into 200 or more separate transactions to purchasers in Illinois. This law is not retroactive.
The State of Illinois estimates this Public Act will bring in an additional $200 million annually ($140 million for FY19) from the 6.25% Use Tax that will be collected. Locals will receive their share of Use Tax collected.
The Illinois Department of Revenue is available to assist any out-of-state retailers in registering their business to ensure compliance with the new Public Act.
Current Law Background:
Currently, Illinois law requires an out-of-state retailer to have a physical presence in this State to establish nexus. The following activities establish nexus:
• Physical presence. This type of nexus is established when an out-of-state retailer has more than the slightest physical presence in Illinois. This could be an employee, an agent, an office, or other physical location.
• Click-thru nexus. This type of nexus is established when an out-of-state retailer contracts with a person in this State to refer potential customers to that retailer. The retailer tracks those referrals using a promotional code or other mechanism, pays a commission or other consideration based on sales to purchasers through such referrals, and meets a $10,000 threshold.
• Affiliate nexus. This type of nexus occurs when an out-of-state retailer sells the same or similar product as a person located in this State and does so using a similar name or trademark. In these arrangements, the out-of-state retailer provides a commission or other consideration based on sales of tangible personal property to purchasers in this State. A $10,000 threshold must be met.
…Adding…
* Fun *nougat* of information (hat tip Andy Maloney for that joke) from my former colleague at Law360. She says it’s from Chief Justice Roberts’ dissent today.
*** UPDATE 4 (by Barton) ***
Jack Lavin and the Chicagoland Chamber…
“Today’s Supreme Court ruling is welcomed news for brick-and-mortar retailers along with state and local government. As one of the anchors of the Chicagoland economy, retail drives economic development, which supports infrastructure, job creating efforts and creates much needed sales tax revenue. Although some online retailers already collect and pay sales taxes, this ruling now places all retailers on equal footing,” Jack Lavin, president & CEO, Chicagoland Chamber of Commerce.
- siriusly - Thursday, Jun 21, 18 @ 12:13 pm:
Pat Quinn wins!
Snarky comment but it’s true, he took a lot of heat over the amazon tax.
- regnaD kciN - Thursday, Jun 21, 18 @ 12:25 pm:
It’s not a new tax. The use tax law goes back decades.
- Anonymous - Thursday, Jun 21, 18 @ 12:26 pm:
This isn’t a new tax. When I buy something from an out of state retailer who doesn’t collect sales tax, I’m obligated to pay the use tax (which is equivalent to the sales tax) on my state tax return. All this decision does is require Wayfair and the like to collect the sales tax rather than rely on taxpayers to self-report
- Chris Widger - Thursday, Jun 21, 18 @ 12:40 pm:
==In the days after signing the budget, Gov. Rauner repeatedly touted the fact that the FY19 budget had “no new taxes.” I asked the Governor’s office whether the Wayfair ruling’s activation of the BIMP language throws a kink in that narrative. I’ve yet to hear back.==
Expecting Governor Rauner’s narrative to anticipate a somewhat surprising Supreme Court ruling where, instead of punting or holding up their own precedent, Justice Thomas and Justice Ginsburg would instead come together to agree on something, is a pretty big ask. It’s also not a new tax, it’s a clarification on what states can require vendors to do.
- Occam - Thursday, Jun 21, 18 @ 12:41 pm:
To clarify the title, the state government of Illinois will benefit. However, the residents of Illinois will suffer as items they buy online from out-of-state retailers will become more expensive.
It is essentially a wealth transfer from the residents into the State coffers and ultimately into the hands of the beneficiaries of the State’s largesse.
- Anonymous - Thursday, Jun 21, 18 @ 12:44 pm:
Oh no! People are being forces to pay the taxes they owe!
- TNR - Thursday, Jun 21, 18 @ 12:44 pm:
Anyone know if the estimated $150 million was booked in the revenue projection?
- DuPage Saint - Thursday, Jun 21, 18 @ 12:46 pm:
80% of on line retailers pay already? I am surprised by that.
Does that include Amazon and other huge retailers?
- Chris Widger - Thursday, Jun 21, 18 @ 12:49 pm:
==Does that include Amazon and other huge retailers?==
Can’t speak for other retailers, but Amazon certainly charges state tax at checkout. They implemented that policy a couple of years ago.
- MOON - Thursday, Jun 21, 18 @ 12:52 pm:
It’s about time.
- Nearly Normal - Thursday, Jun 21, 18 @ 12:56 pm:
No surprise there. I think most who shop online were expecting this to occur. Amazon has been collecting sales tax ever since they built their first warehouse in Illinois.
- Former Republican - Thursday, Jun 21, 18 @ 12:57 pm:
Rep. McSweeney with the response nobody wanted or needed. Not to mention he’s wrong. It’s not a new tax or a ‘tax increase’.
- Exclamation Point Deleted - Thursday, Jun 21, 18 @ 12:57 pm:
Oddly or interestingly enough I recently paid sales tax on an Amazon direct purchase but then I purchased something on Amazon from one of their 3rd party sellers and I paid no sales tax. That was bizarre.
- Exclamation Point Deleted - Thursday, Jun 21, 18 @ 12:58 pm:
DuPage - they charge the state base sales tax rate.
- Sue - Thursday, Jun 21, 18 @ 12:59 pm:
Any guesses on what Madigan and his supplicants try to spend this new revenue on
- Board Watcher - Thursday, Jun 21, 18 @ 12:59 pm:
OMG this is a nice windfall for the state and McSweeney wants to complain. No, Mr McSweeney this isn,t a new tax, its catching cheaters who are avoiding paying tax’s.
- Chris Widger - Thursday, Jun 21, 18 @ 1:01 pm:
McSweeney’s response isn’t great. The fact is that people should have been paying this all along. It’s sort of like gambling income tax; almost no one is actually paying on their wins (except federally reported jackpots) and people would go crazy if, say, lottery or slot machines started charging you at the point of sale, but it’s still a tax you owe. This makes it easier for the state to get the money the law already entitles it to.
- 47th Ward - Thursday, Jun 21, 18 @ 1:03 pm:
===It is essentially a wealth transfer from the residents into the State coffers and ultimately into the hands of the beneficiaries of the State’s largesse.===
We are all beneficiaries of the State’s largesse. We the people, remember?
- Perrid - Thursday, Jun 21, 18 @ 1:04 pm:
To McSweeney’s whine about “new” taxes - this literally only levels the playing field, and makes the few businesses that were not paying sales tax on the sales they were making in IL pay the tax. Broadening the tax base, spreading the burden around, is never a bad idea.
Also, you’re just now learning about it? I get it’s a huge bill but if you’re going to vote on it and them scream about it for weeks on Twitter you might want to, eventually, read the dang thing. Just imagine, if you had expended that effort, or your staff’s effort, you could have been frothing at the mouth about the “new” taxes almost a month ago.
- Anonymous - Thursday, Jun 21, 18 @ 1:08 pm:
Which members voted to affirm?
Was it 5-4, 6-3?
- Sue - Thursday, Jun 21, 18 @ 1:10 pm:
47 - some are just bigger beneficiaries. Unless your on State benefits or public employees most of us who aren’t just pay the bills. Have you driven into Illinois from a neighboring state lately. You can immediately see the difference in the road conditions. The States falling apart but we can pay the pension and Medicaid payments
- SaulGoodman - Thursday, Jun 21, 18 @ 1:11 pm:
**Which members voted to affirm? Was it 5-4, 6-3?**
www.google.com
- SaulGoodman - Thursday, Jun 21, 18 @ 1:11 pm:
**Any guesses on what Madigan and his supplicants try to spend this new revenue on**
eyeroll
- Perrid - Thursday, Jun 21, 18 @ 1:16 pm:
I should let Saul’s response stand, but for the record:
Q:Which members voted to affirm? Was it 5-4, 6-3?
A: Justice Anthony Kennedy wrote the decision, joined by Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel Alito and Neil Gorsuch. Chief Justice John Roberts dissented, saying the decision should be left to Congress, and was joined by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.
That took less time to find than it took to write this comment.
- Osborne Smith III - Thursday, Jun 21, 18 @ 1:17 pm:
First of all, what has Dave “Illinois Taxes Are Too High!” McSweeney accomplished lately? Does he have any sort of message or platform other than “Illinois taxes are too high! We need to reduce spending and CUT Illinois taxes!”? Every one of his tweets has some type of content to that effect.
(Oh, and when you clearly don’t understand how Twitter works and you’re retweeting yourself, Representative, you lose a lot of cred in my book)
Second,to the question, nobody FORCES a person to buy things online. Therefore, the claim of “no new taxes” is, technically, correct.
- 47th Ward - Thursday, Jun 21, 18 @ 1:18 pm:
Sue, you sound like a selfish and bitter person. We’re all in this together. We have to rely on each other to do the best we can with what we have. There’s no other choice. You can’t wall off the unpleasant parts of the world and pretend everything will be fine.
- City Zen - Thursday, Jun 21, 18 @ 1:20 pm:
Big win for South Dakota, a state with no state income tax and a sales tax rate of only 4.5%.
- Demoralized - Thursday, Jun 21, 18 @ 1:38 pm:
==State benefits or public employees most of us who aren’t just pay the bills.==
You’re telling me you don’t benefit from any government expenditure? Please. You most certainly get some benefit from state expenditures.
- Demoralized - Thursday, Jun 21, 18 @ 1:39 pm:
Rep. McSweeney has never explained what his “fantasy” budget would like like that doesn’t include revenue at the current tax rate.
I find it hard to take him seriously when he takes such ridiculous positions.
- Put the fun in unfunded - Thursday, Jun 21, 18 @ 1:46 pm:
I have not been able to find out how much use tax is collected from the “do not leave blank” line on the Illinois 1040, but I suspect that most people will now put 0 (instead of the “suggested” amount) now that substantially all online purchases are going to be taxed. Is the 150 million estimate net of that?
- Angry Republican - Thursday, Jun 21, 18 @ 1:51 pm:
But I thought sales taxes were regressive and hurt poor people the most.
- peteypablo - Thursday, Jun 21, 18 @ 2:03 pm:
There are a number of reasons why this was a good decision. I would just like to highlight the 5-4 decision on this issue speaks volumes when you look at who landed where.
For the “new tax” argument, the Quill v. North Dakota case has been long overdue for being revisited given the rise in e-commerce. This bill directly helps every brick and mortar business in all of our state legislators districts.
- Perrid - Thursday, Jun 21, 18 @ 2:04 pm:
@ Angry Republican, snark aside, yes you are right, so that means we should change the income tax so that we can (eventually) lower regressive taxes. It’ll be a long time coming before we pull ourselves out of the hole we are in.
- a drop in - Thursday, Jun 21, 18 @ 2:12 pm:
“To clarify the title, the state government of Illinois will benefit. However, the residents of Illinois will suffer …..”
Not the ones in brick and mortar stores. They may actually keep their jobs.
- Baggs McCoy - Thursday, Jun 21, 18 @ 2:18 pm:
Should have happened a long time ago. Brick and Mortar folks collect the sales tax. They also help lower property taxes with the buildings they house their stores. Levels the playing field.
- Sue - Thursday, Jun 21, 18 @ 2:19 pm:
Demoralized- as I suggested state spending on a lot of services has declined to the point of rediculousness. Infrastructure, schools public transit etc. did you know that a monthly transit pass in Bost is less then half of what we pay. All that is happening is taxes of all kinds go up as state expenditures on everything other then pensions and Medicaid suffers. It’s hurting higher ed in a big way
- Demoralized - Thursday, Jun 21, 18 @ 2:23 pm:
==I suggested state spending on a lot of services has declined to the point of rediculousnes==
True.
But that’s not what you said. Your statement suggests that you do not believe you benefit from state expenditures, which is absurd.
==most of us who aren’t just pay the bills==
- Michelle Flaherty - Thursday, Jun 21, 18 @ 2:23 pm:
The decision is quite easy to follow and quite easy to find. I’d recommend everyone take a moment to do so.
I’ll even give you the link.
https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf
- Deadbeat Conservative (blocked yet?) - Thursday, Jun 21, 18 @ 2:23 pm:
=Any guesses on what Madigan and his supplicants try to spend this new revenue on=
Yes. Paying past due bills run-up by the Rauner administration.
- All taxed out - Thursday, Jun 21, 18 @ 2:37 pm:
At least I can control how much of this tax I pay. In 3 months I will be looking at Illinois in the rear view mirror so I can control some of the other taxes I pay.
- Demoralized - Thursday, Jun 21, 18 @ 2:39 pm:
==In 3 months I will be looking at Illinois in the rear view mirror==
Bye. Don’t forget to take your ball too.
- Bigtwich - Thursday, Jun 21, 18 @ 2:47 pm:
“Mr. Justice Holmes said “Taxes are what we pay for civilized society.” Too many individuals, however, want the civilization at a discount.”
FDR 1927
- Highland IL - Thursday, Jun 21, 18 @ 2:47 pm:
== Have you driven into Illinois from a neighboring state lately. You can immediately see the difference in the road conditions. ==
Missouri can’t pay for it’s roads or bridges. They’re arguing amongst themselves about turning I-70 into a toll road so they can finally rebuild it. You can hate the taxes but you have to realize that they pay for a lot of services we take for granted. Compare snow removal between Illinois and Missouri, and hands down we are better.
- Angry Republican - Thursday, Jun 21, 18 @ 3:01 pm:
Perrid, yes it will take a long time for IL to climb out the fiscal hole, but I still find it odd for progressives to be cheering a regressive tax.
- City Zen - Thursday, Jun 21, 18 @ 3:06 pm:
==In 3 months I will be looking at Illinois in the rear view mirror==
Quick glances should suffice.
- Downstater - Thursday, Jun 21, 18 @ 3:07 pm:
AR,
You shouldn’t be–Progressives love sin taxes as well, which can be regressive.
- Lester Holt’s Mustache - Thursday, Jun 21, 18 @ 3:14 pm:
==In 3 months I will be looking at Illinois in the rear view mirror
Bye. Don’t forget to take your ball too.==
And yet they keep coming back to this site, over and over again, to tell us this. When are they finally going to get the stones to stop talking about it and actually do it?
- Thomas Paine - Thursday, Jun 21, 18 @ 3:18 pm:
potato, tomato.
Because of the bill, people are gonna be forced to pay $150 million more in taxes.
It is a sales tax hike.
To make things worse, it is a sales tax hike backed by Mike Madigan.
Good luck with your defense, campers.
- Lester Holt’s Mustache - Thursday, Jun 21, 18 @ 3:22 pm:
==but I still find it odd for progressives to be cheering a regressive tax.==
I still find it odd for republicans to continue to confuse “fairness” with “cheering”. It’s almost like they do it on purpose. I don’t know how many different ways they’ll have to explain how this will help small business owners and their employees before you guys can understand it. You remember them, right? Small business owners? They’re the people the republican party kept telling everyone that they support before they cut taxes for Amazon and Facebook.
- Lester Holt’s Mustache - Thursday, Jun 21, 18 @ 3:23 pm:
==To make things worse, it is a sales tax hike backed by Mike Madigan.==
And signed into law by Bruce Rauner. Good luck with your defense, camper.
- Demoralized - Thursday, Jun 21, 18 @ 3:36 pm:
==people are gonna be forced==
You’re forced to purchase things online?
==it is a sales tax hike==
Technically it’s not. Individuals are supposed to pay those taxes when they file their taxes every year.
- Demoralized - Thursday, Jun 21, 18 @ 3:39 pm:
==people are gonna be forced==
You’re forced to shop online?
- RNUG - Thursday, Jun 21, 18 @ 4:11 pm:
== use tax is collected from the “do not leave blank” line on the Illinois 1040, but I suspect that most people will now put 0 (instead of the “suggested” amount) now that substantially all online purchases are going to be taxed. ==
I know I will now be putting $0 if the State doesn’t remove that line from the tax form.
- Da Big Bad Wolf - Thursday, Jun 21, 18 @ 5:32 pm:
==However, the residents of Illinois will suffer as items they buy online from out-of-state retailers will become more expensive.==
Items will cost the same. You did your taxes correctly every year, didn’t you?
- No big deal - Friday, Jun 22, 18 @ 8:37 am:
I will simply shop via Alibaba as well will many others.
- Leatherneck - Friday, Jun 22, 18 @ 9:58 am:
I think this Supreme Court decision is too little, too late for small town stores and small businesses. Because of Walmart, Dollar General and the ilk.
Unless special excise taxes were applied to anything purchased at Walmart and other big box stores, or at the dollar stores. And if that still didn’t work–they’d probably go after Dave Ramsey books and products next.