Monday, March 7, 2011

Internet marketers threaten to leave state if web sales taxed


Two Internet-based marketers Thursday urged Gov. Pat Quinn to veto a bill aimed at collecting state sales tax on website purchases and threatened to leave the state if Quinn did not.

“I spent the last 12 years of my life creating jobs,” said Tim Storm, chief executive officer of, which employs 52 people. “I’m not asking for anything of Illinois but a veto.”

Storm’s website displays discounts from online merchants, such as or He receives a commission when customers purchase from those sites.

The legislation would force Internet retailers to collect Illinois’ 6.25 percent sales tax on all purchases made in the state. Illinoisans are already required to pay that tax, but it is up to them to declare it.

Because online merchants don’t often have a physical presence in the state, the bill taxes them via affiliate marketers, like Storm’s FatWallet.

If Quinn signs the proposal into law, many retailers that do business with his website will terminate their contracts to avoid paying the tax, Storm said.

“I started (my business) in Wisconsin, but moved to Illinois because it is home,” said Storm, whose website is based in Rockton. “I can literally see Wisconsin from my window – it’s five miles away. If I have to move, I will.”

Scott Kluth, CEO of CouponCabin, joined Storm in urging a veto. Kluth’s website operates the same way as FatWallet. It employs 54.

CouponCabin, which works with more than 3,000 retailers, stands to lose one-third of them – close to 1,100 – if the legislation is signed, Kluth said.

“We’ve grown 100 percent year over year in the last 7 years in revenue, we’re anticipating 54 percent this year, “Kluth said. “I can’t lose a third of my business and continue to grow and walk away from that growth.”

CouponCabin, which is based in Chicago, stays in Illinois because that’s where the talent is, but if the bill is signed, Kluth plans to move his business to Indiana, he said.

The business owners criticized the proposal’s rushed passage during the lame-duck session.

“There wasn’t time to discuss this, there wasn’t time to bring up objections, there wasn’t time to bring reason into this discussion,” Storm said. “It was shoved through.”

There are bills in the House, sponsored by Rep. Linda Chapa Lavia, D-Aurora, and Senate, sponsored by Sen. Antonio Munoz, D-Chicago, to remove affiliate marketers from the Internet sales tax proposal. Neither sponsor returned calls for comment.

The sponsors of the original bill said it was designed to level the playing field between brick-and-mortar stores and online retailers.

“Brick-and-mortar retailers are a vital part of our state and local economy, generating crucial sales tax dollars and, most importantly, employing thousands of Illinois residents,” Senate President John Cullerton, D-Chicago, the measure’s Senate sponsor, said in a statement.

The bill’s House sponsor, Rep. Patrick Verschoore, D-Milan, discounted claims that the measure will result in lost business for affiliate marketers.

“They said the same thing in New York,” Verschoore said “They took it through the courts, and the courts ruled in favor of the law, saying that they had to pay it, so they didn’t leave the state,”

A spokeswoman said Quinn is seeking input from both sides and will make a decision by the March 11 deadline.

Internet sales tax

Illinois’ sales tax is 6.25 percent statewide. Counties and municipalities can add on their own home-rule sales taxes. In Springfield, the sales tax is 8 percent.

Online sales are subject to a “use tax,” which is equal to the state sales tax rate. Customers are responsible for keeping track of their online purchases and paying the tax, but state Revenue Department officials testified that there is little compliance, according to a spokesman for Senate President John Cullerton, D-Chicago.

House Bill 3659, which was passed in the lame-duck session of the previous General Assembly, would require Internet retailers such as, instead of individual customers, to collect the use tax and pay it to the state.

The measure would apply only to merchants with affiliate agreements in Illinois. An affiliate agreement is where a website directs traffic to online retailers and receives a commission.

Use tax

The Illinois use tax rate is the same as the sales tax rate: 6.25 percent.

The state keeps 5 percent of use tax receipts. Local governments get 1 percent. County governments get 0.25 percent.

Copyright 2011 The State Journal-Register. Some rights reserved.

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