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Illinois High Court Invalidates 'Amazon Tax' for Sales

By John O'Connor

SPRINGFIELD, Ill. -- The Illinois Supreme Court threw out a state law Friday that taxes certain Internet sales, saying what has been called the "Amazon tax" violated federal rules against "discriminatory taxes" on digital transactions.

The 6-1 ruling represented the first time a court had invalidated an Internet sales tax law among 18 states that have them. It brought an immediate cry from traditional, store-based retailers for Congress take steps to regulate taxes on Web sales.

The court determined that Illinois' 2011 "Main Street Fairness Act" was superseded by the federal law, which prohibits imposing a tax on "electronic commerce" and obligates collection that's not required of transactions by other means, such as print or television.

Illinois' law required out-of-state retailers to collect state taxes on annual sales of more than $10,000 that involve in-state "affiliates," or Web site operators and bloggers, that draw consumers to the retailers' sites in exchange for a cut of each sale.

That prompted several high-profile departures from the Prairie State by such companies as CouponCabin.com, which fled rather than lose so-called "click-through-nexus" payments from the Internet retailers.

But Justice Anne Burke, writing for the court's majority, questioned whether there was any substantial difference between out-of-state businesses reaching Illinois consumers through a click-through-nexus approach or through other approaches that aren't taxed.

"The click-through link makes it easier for the customer to reach the out-of-state retailer," Burke wrote. "But the link is not different in kind from advertising using promotional codes that appear, for example, in Illinois newspapers or Illinois radio broadcasts."

Justice Lloyd Karmeier dissented, saying the federal law does not apply because the state statute doesn't "impose any new taxes or increase any existing taxes," but rather changes the definition of who's obligated to collect them.

But Illinois residents should not expect refunds for the books, neckties, CDs or other items they bought by click during the past two years. Regardless of how an item is purchased, Illinois shoppers must pay 6.25% sales tax. If a retailer doesn't collect it online, taxpayers must do the math and add the owed sales tax when figuring their state income-tax return in the spring.

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