When did it become acceptable to propose and enact laws that discriminate against technology and its users? In the last few years there have been various tax proposals:
- To impose outrageously high taxes on broadband;
- That ignore constitutional limits on states taxing online sales; and
- Directly target technology.
Instead of celebrating and protecting innovation and its users, tax, legislative and regulatory authorities seem to treat it as a threat, or an opportunity for more revenue.
Last week the issue arose again when the Illinois Supreme Court ruled in Performance Marketing Association, Inc. v. Hamer that the Illinois “click through” nexus law was unconstitutional. Called the “Amazon tax” because it specifically targeted Amazon.com, the Illinois (and elsewhere) law would require a remote seller—e.g., a Missouri Internet merchant—to collect Illinois sales tax if the buyer was in the state and if the merchant had paid referral contracts with Illinois affiliates. The net result is that the law greatly reduces the “presence” necessary for a state to require an online merchant to collect its sales tax to the level of a mere contract in the state.
The court determined that the law required online marketers to collect tax, but did not require the same for more “traditional” marketers, and thus ran afoul of the federal Internet Tax Freedom Act (ITFA), which prohibits multiple or discriminatory taxes on the Internet.
“In short, under the Act, performance marketing over the Internet provides the basis for imposing a use tax collection obligation on an out-of-state retailer when a threshold of $10,000 in sales through the clickable link is reached,” the court concluded. “However, national, or international, performance marketing by an out-of-state retailer which appears in print or on over-the-air broadcasting in Illinois, and which reaches the same dollar threshold, will not trigger an Illinois use tax collection obligation. The relevant provisions of the Act therefore impose a discriminatory tax on electronic commerce within the meaning of the ITFA.”
That law, first enacted in 1998, is set to expire next year. The current proposal seeks to make the law permanent, eliminating this sort of online discrimination. Previous similar attempts ended with a couple-year extension and with various carve outs to allow certain jurisdictions to continue discriminatory Internet taxation. This time the Act should be made permanent and without loopholes, making a clear statement that discriminatory treatment of technology is not acceptable.
Last week the issue arose again when the Illinois Supreme Court ruled in Performance Marketing Association, Inc. v. Hamer that the Illinois “click through” nexus law was unconstitutional. Called the “Amazon tax” because it specifically targeted Amazon.com, the Illinois (and elsewhere) law would require a remote seller—e.g., a Missouri Internet merchant—to collect Illinois sales tax if the buyer was in the state and if the merchant had paid referral contracts with Illinois affiliates. The net result is that the law greatly reduces the “presence” necessary for a state to require an online merchant to collect its sales tax to the level of a mere contract in the state.
The court determined that the law required online marketers to collect tax, but did not require the same for more “traditional” marketers, and thus ran afoul of the federal Internet Tax Freedom Act (ITFA), which prohibits multiple or discriminatory taxes on the Internet.
“In short, under the Act, performance marketing over the Internet provides the basis for imposing a use tax collection obligation on an out-of-state retailer when a threshold of $10,000 in sales through the clickable link is reached,” the court concluded. “However, national, or international, performance marketing by an out-of-state retailer which appears in print or on over-the-air broadcasting in Illinois, and which reaches the same dollar threshold, will not trigger an Illinois use tax collection obligation. The relevant provisions of the Act therefore impose a discriminatory tax on electronic commerce within the meaning of the ITFA.”
That law, first enacted in 1998, is set to expire next year. The current proposal seeks to make the law permanent, eliminating this sort of online discrimination. Previous similar attempts ended with a couple-year extension and with various carve outs to allow certain jurisdictions to continue discriminatory Internet taxation. This time the Act should be made permanent and without loopholes, making a clear statement that discriminatory treatment of technology is not acceptable.