We are overjoyed to announce that the Illinois Supreme Court has upheld its win against the Illinois Department of Revenue, declaring the Affiliate Nexus Tax law invalid.
Most importantly, the law is “void and unenforceable” and advertisers can reinstate their Illinois affiliate marketers immediately. The PMA’s legal counsel, George Isaacson of Brann and Isaacson, provided the following guidance:
The ruling by the Illinois Supreme Court that Public Act 96-1544 is “void and unenforceable” results in a judicial finding that the statute was never legally valid and, therefore, it is not currently in effect. This means that advertisers are free to reinstate their Illinois affiliates whose contracts were terminated out of fear of the “click through” nexus law. Of course, advertisers must still be wary of any additional activity that may be conducted by web affiliates on their behalf, such as active solicitation of prospective customers and other in-state promotional efforts. The court ruling does not displace, or supersede, traditional, physical-presence nexus standards. If Illinois affiliates engage in activities that go beyond the posting of Internet links, there remains the risk that those affiliates could create nexus for out-of-state retailers under existing nexus principles that are unrelated to the statutory provision that was struck down by the state Supreme Court.
In its decision, the Illinois Supreme Court agreed that the challenged statute is invalid. The court agreed with the PMA that advertising via performance marketing affiliates does not give rise to tax obligations and is therefore a discriminatory tax on Internet commerce. Discriminatory taxes on Internet commerce are prohibited by federal legislation, known as the Internet Tax Freedom Act (ITFA). This case is the first to uphold the ITFA.
By our estimates, Illinois-based affiliates numbered at least 9,000 and in 2010 generated $744 million in advertising revenue. When the law took effect in 2011, those affiliates experienced economic devastation when out-of-state retailers, wanting to avoid sales tax collection obligations, simply terminate their relationships with affiliates. In fact, we estimate about 1/3 left the state, 1/3 downsized, and 1/3 went out of business.
What’s worse is that 12 other states passed similar laws, devastating the incomes of over 90,000 affiliate marketers. That’s about 1/3 of all US affiliates! The PMA has been committed to fight these laws and reverse the damage done to small businesses in our industry.
Here are links to the court’s decision: summary and full decision.
The fight continues, as we work to block attempts by other states, and as we lobby in support federal legislation that will invalidate all these state laws. We need your help and support now more than ever. Contributions to the PMA Freedom fund will help cover our enormous legal bills! Please consider a financial contribution.
This is a great victory for our small industry, and thanks to all of you who have helped!
