Illinois Internet Sales Tax Struck Down by State Supreme Court

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The Illinois Supreme Court struck down a 2011 state law that imposed a sales tax on online retailers, this week. This might lead to local brick-and-mortar shops being at a disadvantage against online retailers, but the reasoning of the court was quite clear in its 6-1 decision which held the state law was in conflict with a federal law that forbade the establishment of a “discriminatory tax on electronic commerce.”

The internet sales tax law in the state had been promoted by the Illinois Retail Merchants Association and large retailers and was meant to remove the apparent unfair advantage online retailers had against local establishments in being able to skip sales tax.

  

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Earlier, a Cook County judge had ruled the law to be both unconstitutional and violating the federal Internet Tax Freedom Act, because it imposed a tax on businesses that did not have a “substantial nexus” within the state.

However, the high court did not hold the tax law was unconstitutional, but that it did violate the federal law and was invalid.

The Performance Marketing Association, a trade group representing online sellers had challenged the law arguing that the law was discriminatory in as much as it placed a tax on the online performance marketers, but did not place a similar tax on offline activities of out-of-state marketers.

The Illinois Retail Merchants Association has expressed that they hoped the Illinois Department of Revenue will appeal the decision to the US Supreme Court as retail merchants in the state are at a disadvantage without the protection of the law.

The IRMA also urged passage of the Marketplace Fairness Act, a federal legislation that is meant to compel online retailers collect sales tax on behalf of the states of residence of their customers.