'Amazon Tax' Under Supreme Court Review

May 23, 2013

The Illinois Supreme Court heard arguments Wednesday in case challenging the state's so-called "Amazon tax." The decision could change the way Illinois websites make money online. Brian Mackey reports.

When you click a product link on a website — like if a blogger links to a book she's reviewing — the blogger can make a deal with the retailer to get a cut of the sale.

Those are called "affiliate marketing links," and Illinois passed a law to collect sales taxes on such purchases. It's often called the "Amazon tax," and it was declared unconstitutional by a Cook County judge. The state is appealing that decision to the Illinois Supreme Court.

George Issacson represents the businesses challenging the law. He says the tax has backfired on Illinois government.

"My guess is they've lost revenue, because as Illinois companies have left the state in order for these Web affiliates not to be subject to the reach of the statute, what you lose is corporate income tax. What you lose is employee individual income tax," Issacson says. "It seems to me a it's a good object lesson in why states should not be handling this on a piecemeal basis."

A spokeswoman for the Illinois Department of Revenue says taxes collected under the Amazon law are not tracked separately, so there's no way of saying whether Illinois has lost money.

The case comes as Congress is considering legislation that would settle questions about how to tax online sales across the country. A measure that passed the U.S. Senate would let states force online retailers to collect taxes for all purchases within their borders. But it faces an uphill climb in the House.