Potential Illinois Tax Law to END Amazon Associates Program for Illinois Residents

For those who may be considering this...

Alaska, Delaware, Montana, New Hampshire, and Oregon have no state sales tax.

Delaware also has extremely attractive corporate laws.

This won't work I'd say, and definitely requires the opinion of a lawyer. Virtually all states require a corporation registered in another state to register in the home state as a "foreign corporation" in order to operate there. As a "foreign corporation" you pay the same taxes as if that was home base for your corporation.

It will take tax authorities about two seconds to determine that you are trying to evade taxes by having a shell corporation in another state. Then, there is the issue of the paycheck you get from your shell corporation... that is evidence that your corporation has a "brick and mortar" presence in the state where you live anyway.

A fair deal on taxes doesn't start with incorporation. It starts at the ballot box.

Is it necessary right away to form an LLC or some corporation / business entity? I've just been operating as an "individual" I guess....


Thanks

There's a pattern in these laws the states are passing.

Basically, they are saying that if John lives in Illinois, and he is an Amazon affiliate, then Amazon is legally required to collect state sales tax from the customers John refers to them.

Amazon is not really bothered by the sales tax thing, but they are bothered by the reality that this requires massive refitting of the affiliate system and could eventually mean they have to file state tax returns in all fifty states.

So what Amazon is doing is saying "We're not going to collect sales tax for you. So if your state makes a law that we have to collect sales tax, we're going to stop paying you."

And the people in charge will hear about it. Of course, this is the third or fourth state to do this, and the others sure as hell didn't care.

Slightly off topic, but California has a proposal that will probably pass under Brown. It requires that people pay sales tax on on services as well as goods. So, if you are an architect, consultant or build web sites or whatever, you will have to charge the prevailing rate (about 8% at the moment) for the work you do.

Amazon is on solid ground--it is against the Federal Interstate Commerce Act to charge sales tax if you do not have a brick and mortar presence in that state. However, states are so desperate they are saying an affiliate is a brick and mortar presence. One day this issue will probably be decided by the Supreme Court.

In the meantime, if Amazon wants affiliates, it will have to start paying taxes in the states demanding it, at least until the matter is settled in court.

You hit the nail on the head! California is not too far behind...and take this from someone whose husband works for the California State Legislature. I believe my husband mentioned something about the "Nexus law."

I haven't researched it too much only because I don't promote Amazon heavily, however, that doesn't mean it will not apply to affiliate programs like Google, etc.

Not necessarily. I have not read the Illinois law, but often these laws have dollar threshold amounts so that they target Amazon but not a mom and pop website with an affiliate problem.

Technically, yes, but those of us who deal only in digital products have a slight advantage.

First, purely digital products frequently are not taxable at all. So in most cases, there is no tax.

Second, we do not need to ship anything to our customers, so we do not need their physical address. This makes it impossible to identify the edge cases where tax may be owed.

Third, if one does not pay sales tax on a taxable item, it is usually a state law that you have to track the expense and pay the sales tax you owe on it at the end of the year.

So we probably don't need to collect tax, if we do there's no way for us to know, and in the end it's the customer's responsibility anyway.

If this passes I will be contacting a friend of mine in vegas and asking them to let me use their address as my home location just for my affiliate programs. What pisses me off the most about this is the fact it will be basically laying off several thousand more illinois workers/taxpayers for no gain what so ever. Illinois laws have always been about making way for big business but never before has it been to destroy the little guy trying to make aliving.

Then for amazon to say they will be canceling assosiates who live in illinois just because of this legislation is outrageous. No government anywhere should be able to tax a person just because the person who directed them to the site lived in a certain state. Tax the individuals who are the purchasers living in that state fine but to tax an individual just because the person trying to sell the product lives in that state is simply outragous.

I can tell you this if they do pass this bolarki Not only will I be moving out of the state. I will never pay any taxes to this state ever again. Atleast blogo was trying to line his pocket from individuals who already had the money to be ripped off. Where as quinn is trying to line is pocket by punishing anyone and everyone who purchases anything from the sate.

As I stated I see nothing wrong with them adding a tax to purchasers from illinois but to tax someone the state tax just because an illinois resident sent them their to purchase something is outrageous. Wasn't quinns thing I will not raise taxes I will give to the little guy and I will lower the illinois deficit. How the hell is this going to work for any of this.

I actually did this in CO - I wrote my governor - no response though of course. But, yes by all means! I think we need some type of viral campaigning on a BIG BLOG site! "Why hurt the entrepreneurs?" In this economy, why do you want to crush the small businesses who are trying to make a measly 4-8% commission! It is pretty ridiculous!

As far as changing states and being deceitful, that seems risky if it catches up with you. The option may be to just look at other affiliate sites - I know Amazon is the BIG one though!

Yea that other option is move to canada or out of america all together. We all know that when a few states do anything in america they all seem to do it. It may take a few more years for the other states but it will happen everywhere and there is nothin you can do about it. If you are not a big business you are pretty much screwed either way.

Yes certain states like cali have to pay taxes no matter what on any purchase they make. What makes this different is they want to tax individuals from other states just because an illinois resident sent them to the product page. So amazon would have be forced to charge everyone the illinois state tax on purchases even if they are not an illinois resident. Take a look at the pr I pasted above it goes into a little bit more detail.

This makes me rather nervous.

We went through the same thing but our good old Gov. Lingle vetoed the bill.
You could almost hear the collective sigh of relief by all the resident affiliates here. But now that we have a new governor, who knows what will happen in the next few years?

I think it's time I start looking into other areas of IM although I do like promoting Amazon...

Yes. It is usually called a "Use Tax" and is a line on most state tax forms. They expect you to self-report the value of things you bought in other states. I'm pretty sure most people skip that line.

This is the point where I have to say I'm not a lawyer.

Every state I have ever checked, without exception, has required that its residents pay sales and use tax on certain products no matter where they are purchased.

It is the consumer's job to know whether sales and use tax was paid, how much was paid, and to which state.

On the consumer's tax forms each year, all sales and use tax owed is calculated. If some of it was paid in another state, you may deduct what was paid in the other state.

So if you live in Washington State, where the tax is about 9%, and you go to Virginia where it is 4.5% (or rather it was when I lived there), then you may deduct the 4.5% you paid and only pay the remaining 4.5% you owe.

If this is reversed, however, you may only deduct the 4.5% tax you owe on the goods in Virginia - not the 9% that was paid.

In either case, your state government turns to the other state government and sticks its hand out for the tax you paid there, but owe in your home state.

Now, we turn to the internet. Let's say you buy something on the internet. If, according to your state laws, you are supposed to pay sales and use tax on what you buy... you are the one responsible to know it. If the site where you bought your product did not charge sales tax, then you must declare that on your taxes and pay the sales tax you owe in your state.

This is the way things are supposed to work, anyway.

In reality, you go to another state and buy some stuff... but "cop didn't see it, I didn't do it." That stuff just appeared! You didn't buy it! Honestly, it was... a gift! It was the law of attraction! The power of positive thinking! The fruits of your nightly prayer circle! Whatever! You'll say anything, really, just so long as you don't have to pay sales tax on it.

Now, what the states are after here is to say that if a company has an affiliate in their state, it has a business presence in their state. And that means that have to collect sales tax and remit it to the state on a quarterly basis.

Because most people take the "standard" sales tax deduction every year.

Now, if you pay more sales tax than the standard deduction, the state makes money. But if you pay less... whether by purchasing undeclared products in another state, or buying things over the internet... the state loses money.

The states are losing money, and they are convinced it is because of the internet. So they are trying to make companies on the internet collect - and send them - their sales tax.

They have every right to do this. They are trying to collect money which is legally and rightfully theirs.

However, Amazon is saying - also quite legitimately - that it is not their damn job to fix these states' problems. If the states cannot figure out how to get the taxes they are owed, they can take it up with their own residents. Amazon will NOT accept that it is somehow their responsibility to pick up the slack.

Both sides have a perfectly sensible and reasonable point.

Now, to the point of "shell" corporations.

There is a certain level of formality required in the operation of a corporate business.

If you form a corporation, you will hold at least annual and preferably quarterly meetings of the board of directors. You will keep minutes. You will keep records. You will issue an annual report. Your corporation will have its own bank account, containing its own money, that you do not use for personal reasons. These things are not terribly difficult, but if you do not do them it can destroy the protection of your corporate status.

This is called "piercing the corporate veil."

Sometimes it is flat-out ridiculous. I have written personal checks to my own company, stamped them with "for deposit only," taken them to the bank, and deposited them at the business counter. Then I've had them issue a cashier's check for my "commission" on the check I just deposited, paying a small fee for this service, and taken it to a personal teller where I deposited it in my account.

How stupid! Why not subtract my share from the personal check beforehand?

Because my company is not me.

And if you don't integrate this into your brain and make it part of your mindset, then Don is 100% right. They will catch your pathetic subterfuge and you will suffer for it.

Running a corporation is serious business. I don't really belabour the details, because I know most of you don't care and a few of you will argue about how stupid it is.

But this is the kind of thing you have to do. You have to grasp that you personally are not your corporation, and your corporation is not you, and every last transaction has to look and feel like you're two different people who do not trust one another.

EDIT: I didn't notice how long this message was. Sorry. I've been drinking.

The five states with no sales tax and the one where Amazon has a presence anyway.

Hey, that last one's me!

Income tax isn't paid to local government.

They are doing it because more and more people are buying online and "99%" (made up) dont pay use tax as directed by the law. So they are trying to create a false Nexus.

Garrie

I also posted already in another thread. I got the email too, and this does not bode well for me unless I move or set up an LLC (if that will in fact work).

I bet someone will start a WSO soon on how to set up one, or how to get around this problem.

You're represented. You get to vote. If you don't, or you vote for people who do things like this, then you don't get to bitch about it.

Similarly, if you don't like the laws in your state, there are forty-nine others.

When I was planning to do a lot of affiliate promotion, I looked at what was going on in North Carolina and moved to Oregon. There's no state sales tax in Oregon, so I could promote any affiliate program I wanted.

When I later decided to concentrate on creating my own info products instead, I moved back to Washington state where there's no state income tax.

I appreciate that some people have family and friends they don't want to leave behind. But when you have a dilemma like this, you get to make a choice.

If you choose to remain in Illinois, then clearly remaining in Illinois is the choice you prefer. Whinging that you don't get to have everything you want is just childish. Nobody gets everything they want.

I am not an accountant, but I'll give my opinion...I don't think Amazon will care about anything except the state your address shows.

Then again, the state of Illinois might care if you show earnings from Amazon and yet not report any sales taxes. Unless of course you report the taxes anyway.

But is this possible? Setting up a LLC in1 state while living in another? What about then registering that LLC as a foreign corporation in the state you are living in? many questions

Do you have a resident agent for your company?

Routing numbers can show the state/city. 1099s will be an issue too.

You could sell the Amazon affiliate side to your sister and have her pay you an 80% cut of the profits as a subcontracter. Your sister then keeps 20%, sends you a 1099 and checks. Plus she can now deduct part of her house hold bills from taxes and gets 20% for doing very little. Win for you and her.

Not legal advice... Might be illegal... blah blah blah.

Garrie

Well, I did write my congressman - a while back since I reside in CO. I also reached out to Glenn Beck - he is a big proponent of entrepreneurs.... LOL He probably won't get to my email though.... We have to spread this

I approve this message.

I hate this advice cause it's such rah-rah BS. The way politicians of any significance get elected is with money...plain and simple.

Get a skype number.

This is the way I understand it as well, which is why this bill is unconstitutional. They would be collecting Illinois sales tax from buyers NOT from Illinois just because the Amazon affiliate is from Illinois. Just another desperate measure by corrupt and incompetent politicians. I don't see how this bill could even pass, but it did...Time to start focusing on Clickbank products and online retailers that actually have a brick and mortar presence in the state and offer affiliate programs. Walmart and Target just to name a couple big ones.

I hope Gov. Quinn thinks about this a lot. I think the legislature acted too quickly, and felt that Amazon et al would simply charge the sales tax and give the state more revenue. That is the idea.

But in reality, once this bill goes through, Amazon will remove all Illinois affiliates, and Illinois will LOSE revenue. There are 9000 Amazon affiliates in Illinois (including me) and they will all lose revenue, which means less tax money for Illinois. Worse than that, Illinois will lose tax revenue from online businesses who use Amazon, and who will either lay off employees and/or move away because of the bill.

I read that Amazon will legally challenge this bill if it goes into law.

I'm not sure if Amazon has backed down in New York. From what I read, they appealed the decision of an appeals court that the Amazon Law there is not unconstitutional, and is taking the issue to a higher court. So I hope they do follow through with their threats.

Only if Amazon decides to keep affilates from Illinois, because they will then have a presense in Illinois. If Amazon decides to disconnect from all Illinois affiliates, then no.

Currently bill or no bill, Illinois residents have to pay the tax on anything they buy fnrom Amazon. But no one does, and no one will start. The bill forces Amazon to collect this tax, since they have affiliates in Illinois, but Amazon would rather just get rid of the affiliates than collect the tax.

No news yet since they reported that it was finally on the governors desk on the 13th...

You're right, CT and CA both have multiple nexus tax bills introduced in their legislatures. On top of that, SC and GA now have special tax commissions looking into this and other ways to raise taxes as well. You can find out more at Performance Marketing.

http://www.performancemarketingassociation.com/

Yes, Illinois has income tax. In fact Illinois just raised the income tax by 66%, which is enough to make business pause.

And yes, this is all a stupid decision. The big "need" for the online sales tax is to supposedly even the playing field for small mom and pop shops. However, if sales tax alone is enough to destroy a store, then the business needs to learn to be both competitive and creative, and shutting down online companies will not change that fact one bit.

Abolutely! In fact I tell people that to circumvent this nonsense:

1) Go with a friend or relative (that you trust) in an Amazon-approved state

OR

2) Setup an address at a UPS store in an Amazon-approved state

It works!

Thanks for the link. Thinking that Amazon is bluffing is just plain silly. They've proven they are not by terminating affiliates in other states that passed the same legislation.

Mom and pop stores believing that this bill will somehow level the playing field and help them generate tons of added sales is a dream. It gets used as an excuse to make themselves feel better and avoid taking responsibility for the real reason their business is not prospering...themselves.

Shopping online has exploded year after year for many reasons, and it is not going away due to a state sales tax.

Very good podcast! Thanks for posting it. Clickbrief also linked to an article at the Kansas City Star that gives some helpful information on the history of the battle over online and catalog sales tax. It's a complex issue that has gone on for decades.

States try to collect billions in unpaid online sales taxes - KansasCity.com

Nope. However there is a similar situation in Texas, where the state wants $269 billion from Amazon in sales taxes, from Amazon sales to Txas residents. In this case Amazon has a distribution center in Texas, so that is considered a presence (to the Texas governor). Amazon will not pay the taxes and will apparently close the distribution center instead. I don't know what will happen with Texas affiliates.

From what I've been reading, the presidents of ShareASale, Fat Wallet and and some other companies all met a week ago with the Gov's chief of staff. They were told that no decision was expected until the March 11th deadline.

Thanks for that link. I just filled it out.

Also just seen a story that Texas has now introduced a Nexus bill in their legislature as well.

Which will probably happen immediately. At the latest, it's July 1st, when collection of sales tax needs to begin.

Rob

It's fine. I live in Colorado, right near the border between New Mexico and Colorado in fact. Amazon dumped Colorado affiliates last year, yet I still get payments--to a bank account in New Mexico.

Some people are even starting to register their businesses other states to get around this, which also provides several tax benefits (especially if you register your business in the state of Nevada!)

I believe Amazon said they will terminate associates once the bill was signed into law. Notices probably being prepared at the moment. Not a good day, but predictable with this state.

IL is in such a financial mess they have no clue how to fix it. It will be the next Detroit.

For those who dont know what this is about here is a link. Hey i say bring it to Las Vegas! Because they are not going to be alone.

‘AFFILIATE MARKETERS’ SAY THEY WILL BE FORCED TO MOVE TO OTHER STATES IF GOV. QUINN SIGNS HB 3659 - Effort to Collect Tax from Internet Sales Will Cost Illinois Jobs, Revenue - Built in Chicago

AHHH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

MAn... I hate illinois, we suck, not only is 90% of the state cornfields, the remainder is chicago + east saint louis which is no good. This just sucks, one of many things that are messed up about our state.

At least I can say I definitely did not vote for Quinn.

I'm going to need to move across the river.

What!! Why are so many state governments trying to destroy prosperity? There is nothing wrong with people making money online. Yikes!!

One after another, I guess it's a matter of time before other states catch up.

Honestly, I think amazon will have to start dealing with this rather than running away.

Join the club- it happened here in NC as well. I haven't found a good alternative yet- I'll let you know if I do though.

Good Luck!

Illinois is desperate for money thats why they did it

Yep, I got the same email from him. Gotta love how he makes it out like this is a positive change lol...

What I'm wondering is if all online merchants are going to start following the same thing Amazon is doing and cutting off all their affiliates. What about all the merchants on CJ that some of us use?

I guess we will just wait and see. I know if more merchants start cutting us off, I'm for sure getting out of the state or incorporating elsewhere.