While Amazon began collecting Illinois sales tax, effective February 1, 2015, affiliate nexus laws do not solve the sales and use tax compliance problem that states have with remote sales. For one, while such laws have certainly generated additional revenue for states, remote sellers can simply close their affiliate programs with residents in a state that enacts a “click-through” nexus standard. This not only results in lost sales tax on remote sales, but also lost income tax for income generated by the resident affiliates that use such affiliate programs. Furthermore, business models will continue to change in response to such evolving nexus standards. Indeed, Amazon now collects sales tax in twenty-four (24) states, as it continues to grow its physical presence, regardless of such changing nexus standards. While Amazon had pulled its affiliate program out of Illinois in response to the previous Illinois “click-through” nexus law in 2011, Amazon is constructing a distribution facility in Illinois, set to open in 2017.
The Illinois “click-through” nexus law represents a disturbing trend in evolving nexus standards that create a presumption of nexus for all remote sellers that utilize any method of advertising or marketing – Internet, printed media, broadcast media - to reach potential customers. This trend can have implications not only for Internet retailers, but for all sellers, including the company in one state that advertises on billboards, radio, television or newspapers, and generate sales to customers located in another state.
Meanwhile, the debate over a legislative fix to state tax nexus over remote sellers continues to intensify in Congress. Representative Goodlatte (VA) has issued a draft proposal of the Online Sales Simplification Act, designed to address states’ sales tax compliance obligations for remote sellers, while responding to the criticisms of many regarding the Senate’s Marketplace Fairness Act, which attempts to do the same. What is clear from both the House and Senate proposed solutions is that (1) more work remains to be done before a workable solution is achieved, and (2) a Federal resolution addressing the sales taxation of remote sales is something we are all likely to see in the next few years, if not this year.