Saturday, March 12, 2011

Illinois Internet Sales Tax

This week the governor of Illinois signed a bill that would require all internet retailers with affiliates in Illinois to collect a 6.25% sales tax on all sales to residents of Illinois. This law has some god points and bad points, but what disturbs me the most is that several companies like Amazon have decided to dump all of their Illinois affiliates rather than collect the sales tax. Amazon did the same thing in Colorado recently, and I think it's just plain wrong. 


Amazon should step up and collect the tax. I feel that their action is no different than a corporation moving its manufacturing to another country. The company grows with the help of the little guys, then dumps the little guys to keep their profits up. The almighty dollar wins again. Many of Amazon's affiliates are small businesses who rely on their association with Amazon to keep their business going. Amazon knows that their bottom line won't suffer because they have affiliates in other states that will pick up the business, and they don't seem to care that the Illinois affiliates helped them make a lot of money up till now. I have to believe that Amazon can afford the costs associated with processing the sales tax.


What I really like about the new tax law is that it does something to help level the playing field between internet retailers and brick-and-mortar businesses like mine. For the last several years I have lost many sales to the internet because I have to charge my walk-in customers sales tax. On a $1000 pottery wheel that's $70 in tax, more than the cost of shipping from an online retailer. I've even had my own students go online rather than buy from me because they could get a wheel cheaper. Online-only retailers also have lower overhead and fewer costs than physical stores, so they can usually offer lower prices. Add to that not having to charge sales tax and they've got a very big advantage over the local shops. Making them charge sales tax would decrease that advantage a bit, and give back to the states all the sales tax revenue that has been missing for the last 15 years. Remember, most of the things that people by online used to be bought locally, with sales tax.


That said, I don't agree that the new tax law is a good idea. Yes, Illinois, like every state, loses $200 million a year or more in sales tax revenue due to online sales. And yes, Illinois is in a budget crisis. But as we've already seen with Amazon, there's a good chance that more revenue will be lost by businesses avoiding Illinois altogether than will be collected in internet sales tax, and ultimately the little guys will suffer. The problem cannot be remedied state by state. There must be a national internet sales tax so that there is no advantage to any one state. And it must be paid to the state where the seller is registered, not where the buyer lives. Small businesses cannot handle the amount of paperwork that would be required to pay sales tax to all 50 states. The taxes could be paid at the same time as the local sales tax, and it would be very simple to handle. It's a simple solution that would bring needed revenue to the states, and give local shops a chance to compete in the market.


So we'll have to wait and see what happens here in Illinois. Hopefully the small online retailers won't suffer from their loss of affiliation with Amazon. The last thing we need is for more small businesses to fail.

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