Perspectives

Illinois amends remote seller nexus law previously deemed unenforceable

Multistate tax alert | September 26, 2014

Illinois Governor Pat Quinn recently signed Senate Bill 352 (“S.B. 352”), amending the state’s use tax and service use tax remote seller (out-of-state retailer/serviceman) nexus laws to broaden their application in response to the Supreme Court of Illinois’ ruling in ‘Performance Marketing Association Inc. v. Hamer’.

Senate Bill 352

Illinois Governor Pat Quinn recently signed Senate Bill 352 (“S.B. 352”),1 amending the state’s use tax and service use tax remote seller (out-of-state retailer/serviceman2) nexus laws to broaden their application in response to the Supreme Court of Illinois’ ruling in Performance Marketing Association Inc. v. Hamer.3 The remote seller laws, enacted in 2011, created a new nexus category by adding to the statutory definitions of the terms “retailer maintaining a place of business in this State” a specific reference to a retailer using an in-state commissioned “person” to refer potential customers to the retailer by a link on the person’s Internet website.4

Focusing on the nexus law’s disparate treatment applied to marketing over the Internet as compared to print or over-the-air marketing, in 2013 the Supreme Court of Illinois held in Performance Marketing that the applicable definition provisions “are void and unenforceable” under the federal Internet Tax Freedom Act (“ITFA”).5 In response to this court decision, S.B. 352 broadens the statutory provisions defining a “retailer maintaining a place of business in this State” to include out-of-state retailers contracting with in-state commissioned “persons” who refer potential customers to the retailer by providing to such customers “a promotional code or other mechanism that allows the retailer to track purchases referred by such persons.”6 Among the identified mechanisms are “a link on the person’s Internet website” (a concept carried over from the 2011 law), “promotional codes distributed through the person’s hand-delivered or mail material, and promotional codes distributed by the person through radio or other broadcast media.”7 These law changes are effective January 1, 2015.8

In this tax alert we summarize the prior law, the Illinois Supreme Court’s finding in Performance Marketing, and the amendments contained in S.B. 352.

1 Il. Pub. Act 98-1089 (S.B. 352), signed by Gov. Quinn on Aug. 26, 2014, effective Jan. 1, 2015.

2 S.B. 352 amends both 35 Ill. Comp. Stat. § 105/2 (1.1) (part of the Use Tax Act), which applies to a “retailer” maintaining a place of business in Illinois; and 35 Ill. Comp. Stat. § 110/2 (1.1) (part of the Service Use Tax Act), which applies to a “serviceman” maintaining a place of business in Illinois. For purposes of the discussion in this Tax Alert, we refer only to “retailers,” although the changes contained in S.B. 352 and discussed herein apply to both retailers and servicemen.

3 Performance Mktg. Ass’n Inc. v. Hamer, 2013 IL 114496 (Oct. 18, 2013), affirming, Ill. Cir. Ct. (Cook County), Dkt. No. 2011-CH-26333 (May 7, 2012).

4 35 Ill. Comp. Stat. § 105/2 (1.1) and 35 Ill. Comp. Stat. § 110/2 (1.1), as amended in 2011 by Pub. Act 96-1544, effective Mar. 10, 2011.

5 Performance, 2013 IL 114496, at 23 (Oct. 18, 2013).

6 S.B. 352, Sec. 5, amending 35 Ill. Comp. Stat. § 105/2 (1.1); and Sec. 10, amending 35 Ill. Comp. Stat. § 110/2 (1.1) (emphasis added).

7 S.B. 352, Sec. 5, amending 35 Ill. Comp. Stat. § 105/2 (1.1); and Sec. 10, amending 35 Ill. Comp. Stat. § 110/2 (1.1).

8 See, Illinois General Assembly - Bill Status for SB0352.

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