My Home State Shoots Itself In Both Feet

by Pejman Yousefzadeh on March 11, 2011

Someone ought to tell Governor Pat Quinn about the Law of Unintended Consequences:

After two-months of fence-sitting, Illinois Governor Pat Quinn today signed controversial legislation requiring Internet retailers like Amazon.com and Overstock.com to collect Illinois’ 6.25% sales tax if they have affiliate sellers in the state. House Bill 3659, the Mainstreet Fairness Bill, was passed by the state’s lame duck legislature in early January. Since then, the bill has been the subject of fierce lobbying by traditional bricks and mortar retailers, who supported it, and Illinois-based Internet-only businesses, who warned that if Quinn didn’t veto it some of them would flee the state. Had Quinn done nothing, the bill would have become law tomorrow without his signature.

Amazon has already said it will terminate its Illinois affiliates, just as it has said it will drop 10,000 California based “associates” if similar legislation pending in that state becomes law. Affiliates are paid a fee by Amazon and other retailers for sales brought in through advertisements and links on the affiliates’ web sites. In an escalating PR war, Wal-Mart, SearsBest Buy and Barnes & Noble have all issued public invitations to Amazon’s spurned associates to join their affiliate marketing programs instead. Yesterday, the Alliance for Main Street Fairness, a bricks and mortar retailers organization, even announced a new web site to connect affiliates “about to get thrown under the bus” by online-only sellers  with retailers who already collect sales taxes on line.  Quinn’s office said today that the affiliate matchmaking service had been launched at his request.

In a statement, Scott Kluth, founder and CEO of Chicago-based CouponCabin.com called the Governor’s approval of the bill “deeply disappointing” and said he is “actively exploring” moving his seven year-old business to Indiana. Kluth, a long time resident of Chicago, had previously threatened such a move, telling Forbes, “I can see Indiana form the roof of our business.”

It’s kind of hard to collect revenue via Internet sales taxes when Internet companies simply decide to ditch the state in response to the implementation of those taxes, isn’t it? It’s also kind of hard to revive the economy via tax increases that only serve to drive businesses away. No one should have been surprised by this; there is no way that companies like Amazon would want to spend time and resources collecting taxes for the state of Illinois. And while other companies have stepped in to offer affiliate programs in the wake of Amazon’s departure, that doesn’t justify the passage of business-repelling bills like H.B. 3659.

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