Ill. SC says sales tax law is unconstitutional

SPRINGFIELD, Ill. (Legal Newsline) -- The Illinois Supreme Court ruled Friday that a relatively new sales tax law is unconstitutional.

The ability of consumers to make purchases on the Internet from out-of-state merchants without paying sales or use taxes to the state caused many retailers with a physical presence in the state to ask the Legislature to "level the playing field."

The result was a taxing statute that became effective in 2011 called the "click-through" nexus law, or Amazon-tax law.

Soon after, Performance Marketing Association Inc. filed suit in Cook County Circuit Court. The Los Angeles-based trade group alleged that portions of the law were preempted by federal law and violated the commerce clause of the U.S. Constitution.

The circuit court sided with the plaintiff, invalidating the law.

The state Department of Revenue appealed to the state's high court.

The court, in its 6-1 ruling, agreed that the challenged statute is invalid.

"In short, under the Act, performance marketing over the Internet provides the basis for imposing a use tax collection obligation on an out-of-state retailer when a threshold of $10,000 in sales through the clickable link is reached," Justice Anne Burke wrote for the court.

"Performance marketing" is a method of interactive advertising that pays out only a completed action.

The justice continued, "However, national, or international, performance marketing by an out-of-state retailer which appears in print or on over-the-air broadcasting in Illinois, and which reaches the same dollar threshold, will not trigger an Illinois use tax collection obligation."

The court ruled that the enactment is therefore a discriminatory tax on electronic commerce within the meaning of federal law, which preempts it.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.