May 2010 Sales Taxes in Illinois - Illinois General Assembly

Internet Taxation
Several issues surround the topic of Internet taxation; however, the primary focus is
whether to collect sales and use taxes on goods and services sold over the Internet.
Contrary to what some believe, sales and use taxes for sales made on the Internet would
not be a new tax. Sales taxes are already in place in most state and local governments
and, when the tax is not collected by the internet retailer, it should be reported by the
purchaser on his or her State tax returns.
Due to the US Supreme Court National Bellas Hess case in 1967 and the Quill decision
in 1992, it is not required for a seller who does not have a nexus in a state to collect
sales taxes because it is considered an undue burden on the seller. Therefore, Internet
retailing companies only pay sales taxes in the state in which they have a physical
presence. For example, Amazon.com (who has a nexus in the State of Washington)
primarily sells books and CD’s, pays sales taxes to Washington for only those sales
made to Washington residents. The company is not obligated to charge sales taxes on
sales made to non-residents. This provides Amazon.com with a tax advantage over
main street merchandise stores such as Barnes and Noble, who also sell books via the
Internet, but has a nexus in virtually every state. Barnes and Noble must comply with
all of the states complicated sales tax regulations, which in itself is costly to administer.
Opponents to Internet taxation believe that forcing online retailers to collect sales taxes
will stunt the development of the Net economy. However, other political leaders have
become increasingly concerned over the fact that these companies cut into the profits of
constituents’ main street stores. In addition, it is believed that the tax-free environment
of the online retailer is hurting state tax revenues which are becoming more scarce due
to the lagging economy.
A recent study conducted by the Illinois Department of Revenue estimated that $143
million in sales and use taxes due from online sales went unpaid in FY 2008. The
department estimated that this number would grow to $153 million and $163 million in
fiscal years 2009 and 2010. The report, titled “A New Method for Estimating Illinois’s
E-Commerce Losses,” can be found at:
http://www.revenue.state.il.us/AboutIdor/TaxResearch/InternetSalesTaxLosses.pdf
Streamlined Sales Tax Project
The Streamlined Sales and Use Tax (SST) Agreement was a reaction by the States to
attempts by Congress to prohibit states from collecting taxes on on-line sales in early
2000. Tax collections from on-line sales were seen as not required due to the
complexity of doing so as outlined in a 1992 Supreme Court ruling (Quill Corp. V.
North Dakota, 504 U.S. 298) related to mail order sales.
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