Illinois' Internet Sales Tax Complicates Reporting, Could Harm Chicago e-Commerce Businesses
Our Chicago e-commerce lawyers encourage any business dealing with Internet tax issues to seek the advice of an experienced law firm. Start-up companies in Illinois, in particular, may need an online business attorney to help ensure they are in compliance with applicable state and federal laws.
Previously, the law required a company to prove they had no presence in the state before they could be exempted from charging customers sales tax. The new law, dubbed the Main Street Fairness Act, requires online retailers to collect and remit sales tax on purchases made by Illinois residents if the retailer has a physical presence in the state. The definition of "physical presence" has been expanded to include affiliated companies. Meanwhile, the average sales tax nationwide jumped to 9.64 percent in 2010 -- up more than a full percentage point from the 8.63 collected in 2009. Brick-and-mortar businesses have long complained that the ability to make sales without charging sales tax gives online retailers a 5 to 10 percent advantage.
Illinois' state sales tax of 6.25 percent is significantly higher than the national average of 5.52 percent. Illinois joins New York, Rhode Island and North Carolina in passing measures to collect sales tax from online retailers. The Illinois Department of Revenue estimates it misses out on as much as $170 million in uncollected sales tax each year because of online purchases.
Many of the businesses impacted by the new law are small Internet companies in Illinois, like Chicago-based CouponCabin. Overstock said it works with well over 100 such affiliates and will cut ties with them all. Amazon declined to say how many affiliates it had in the state but was also sending termination letters. The founder of BradsDeals.com said such sites had been a growing Chicago industry.
Chicago Business Attorney Jeremy A. Gibson handles legal issues for small businesses, contracts and agreements, intellectual property and mergers and acquisitions. Call 877-452-4529 for a free consultation.