In March of last year the state of Illinois decided to pass a law that collected Internet sales tax from online companies like Amazon.com and eBay. Commonly referred to as an "affiliate nexus tax," the law passed by Illinois and other states including California, Connecticut, and New York, required online retailers who advertised on "affiliate sites" that had a physical presence in the same state to collect sales tax. The Illinois law had broad support among lawmakers and the state’s governor, Gov. Pat Quinn (D).
Yesterday Cook County Circuit Judge Robert Lopez Cepero ruled that the law was unconstitutional because it ran afoul of the Commerce Clause of the U.S. Constitution. The Supreme Court ruled in 1992 (Quill v. North Dakota) that states cannot collect sales tax from companies unless they have a physical presence in the state. Over the last few years states have been trying to find ways to skip the physical presence rule of that ruling, but have been unsuccessful when these types of laws make it before various courts.
The Illinois ruling follows a similar ruling in Colorado earlier this month. In that case the U.S. District Court of Colorado issued a permanent injunction against Colorado’s reporting requirements law, which forced online retailers to tell the state's Department of Revenue who its customers were and what they purchased. This allowed the state to go directly after their own residents for use tax collection. Use tax is a type of tax related to consumer purchases of things out-of-state. The Colorado court ruled that the law violated the physical nexus standard set in the Quill v. North Dakota case. Another court in North Carolina ruled that a similar law also violated the First Amendment, saying that consumers have a right to purchase goods anonymously in the state.
(Editor's note: ATR is a conservative-leaning group that opposes all forms of tax increases. The organization was founded in 1985 by Grover Norquist.)
Source: Americans For Tax Reform