Illinois State Tax Revenues Drop Following Affiliate Nexus Tax

Illinois had an optimistic outlook when it passed House Bill 3659, which was the state’s affiliate nexus tax. Bill co-sponsor Senator John Cullerton anticipated the new tax would generate an additional $150 million in much-needed revenues. As the Chicagoist reported today, the reality looks far more grim.

January through June 2011, the months before the law went into effect saw the Illinois Department of Revenue collect approximately $139 million use tax. From July 2011 through the end of the year, Illinois collected $127 million in use tax. That’s right, Illinois collected less use tax after their affiliate nexus tax went into effect.

What is affiliate nexus?

In case you weren’t paying attention last year, Illinois and many other states decided they would receive a tax windfall and solve the challenging problem of collecting taxes from residents who purchase across state lines by creating a business nexus around affiliates. Each of the laws attempt to position affiliates as salesmen of the companies they affiliate with, creating a situation where the affiliate’s business address becomes an office for the online retailer. If the online retailer is seen as having offices in the state, the state can collect taxes.

Additional Fallout

Amazon.com and Overstock.com, two of the biggest affiliate programs online, terminated their affiliate programs in Illinois, just like they have in most other states, meaning they avoided the new tax law completely. That also has the side effect of reducing potential income tax revenue from affiliates.

FatWallet, Inc, a coupon site formerly located in Rockton, IL, moved to Wisconsin to avoid the taxes, taking over 50 jobs and any associated taxes with them.

It will be interesting to see if Illinois serves as a wake-up call for other states considering an affiliate nexus tax or if states continue to plow ahead in an ill-conceived attempt to bolster state coffers.

Jake Ludington
https://plus.google.com/100421655488973884511?rel=author

Jake Ludington is the Marketing Communications Manager at HasOffers. Jake has over a decade of experience building content publishing teams, coupled with more years as an affiliate marketer than he cares to admit. Follow Jake on Twitter.

  • Brian Rinnot

    One six-month sample window doesn’t prove anything.

    • Neon2012

      You’re blinding yourself. Politicians who like to raise taxes often perform only a static analysis of tax revenues and get excited by the numbers. The reality however is dynamic. Businesses fight to remain viable and competitive so they choose to move elsewhere. When tax revenues go down during what is supposedly a period of economic recovery, it speaks volumes.

    • Michael

      After the law went into effect was during the holiday shopping
      time. This should have increased as retail sales are so much higher
      during that period.  I wonder how many jobs were lost by this?  Affiliates who were based here just lost their income when Amazon and Overstock (alone with other companies) stopped working with them.   The fallout is much higher than just the tax.

  • http://pulse.yahoo.com/_O6SUMCYZEQFMQP67WXG63NGYHI Depock

    lol, statists.

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  • Jeannine Crooks

    When Colorado enacted the law, they hoped to collect $5MM.  In reality, they collected $20,000.  Turning merchant websites into ad hoc tax collectors is not the answer.