Internet Sales Tax Reform

Federal and state legislative activity concerning Internet sales tax – both passed and proposed – may affect your business.

Why Does the PMA Care About Internet Sales Tax Reform?

Since 2008, there has been severe damage to small online businesses caused by ‘Affiliate Nexus Tax’ laws, also misleadingly known as ‘Amazon Tax’ laws. These unconstitutional laws have caused financial ruin to 90,000 affiliate marketers in the 13 states where the laws passed. These laws were passed to force Internet retailers to collect sales tax on behalf of the states that passed these laws, but in fact did nothing of the sort. In the end, states have not collected any additional sales tax revenue, and actually lost income tax revenue from the impacted affiliate marketers.

PMA members have access to our regularly updated list of states and their current nexus tax status.

The PMA has been actively fighting this state legislation since its inception in 2008, spearheading over 70 grassroots campaigns, filing suit against the state of Illinois, lobbying in support of federal reform legislation, and most recently, supporting Amazon and Overstock with an amicus brief, in support of their petition to the US Supreme Court.

The PMA supports a federal approach to sales tax reform because it will eliminate the Affiliate Nexus Tax laws that have devastated hundreds of thousands of affiliate marketers around the country, it is Constitutional, and it has a very good chance of passage.

Proposed Federal Legislation

The Performance Marketing Association is actively lobbying in support of the Marketplace Fairness Act, first passed by the US Senate on May 6, 2013. This federal bill, which has been revived several times, will pave the way for the collection of sales tax on Internet sales, and will reverse the severe damage to small online businesses caused by ‘Affiliate Nexus Tax’ laws.

The bill contains a new approach to sales tax reform, a ‘no-nexus’ concept that simply allows states to require out-of-state retailers to collect their sales taxes. The ‘no-nexus’ approach lets states keep their current sales tax policies in place, a critical requirement in getting bi-partisan support, and necessary to ensure passage.  The ‘no-nexus’ approach is constitutional if approved by Congress. Most importantly, to our industry, since all retailers (online and offline) would be required collect sales tax  on all purchases, online retailers will be able to reinstate their affiliate programs. These bills have support from influential allies and former opponents such as the National Retail Federation (NRF), Retail Industry Leaders Association (RILA), Walmart and Amazon.

Another piece of federal legislation that has been proposed is the Online Sales Simplification Act of 2016. Similar to the Marketplace Fairness Act, the goal of the legislation is to create a federal solution to the state-by-state approach that impacts affiliate marketers. However, this legislation is more complicated in that it would require merchants to collect sale tax from each buyer based on the buyer’s home state. Taxes would be remitted to the state and passed to a federal Clearinghouse that would then distribute the funds back to the buyer’s state. States would have a choice whether or not to participate.

Past PMA Litigation

April, 2012:  The PMA won its lawsuit against the State of Illinois. The judge ruled that the state’s Affiliate Nexus Tax law was unconstitutional and that it violated the Internet Tax Freedom Act.

September 2013: The PMA submitted an amicus curiae (friend of the court) brief in support of petitions recently filed by Amazon and Overstock with the US Supreme Court.

October, 2013: The Illinois Supreme Court upheld a lower court victory in favor of the PMA’s suit against the State of Illinois, declaring its ‘Affiliate Nexus Tax’ is illegal.  Advertisers Can Immediately Reinstate Illinois Affiliates! [FULL PRESS RELEASE], [COURT DECISION: SUMMARY], [COURT DECISION: FULL].

The Illinois legislature subsequently passed a new law specifically designed to get around the Supreme Court’s ruling.

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