On August 26, Illinois Governor Pat Quinn approved legislation that amends the state's sales and use tax click-through nexus statutes.1 In 2013, the Illinois Supreme Court held in Performance Marketing Association, Inc. v. Hamer that the state's click-through nexus statutes were void and unenforceable due to the federal prohibition against discriminatory state taxes on electronic commerce contained in the Internet Tax Freedom Act (ITFA).2 The legislation addresses this decision by expanding the nexus provisions to include situations where potential customers are referred to out-of-state retailers by a promotional code or other mechanism beyond an Internet link that allows the retailer to track purchases. Also, the legislation adds provisions that permit the retailer to rebut the presumption of nexus. This legislation is effective January 1, 2015.
Background
In 2011, Illinois enacted click-through nexus legislation (the "2011 Act") that required certain out-of-state retailers to collect and remit Illinois sale or use tax on items and services sold for use in Illinois through in-state "affiliates."3 The 2011 Act targeted out-of-state retailers which entered into agreements with in-state "affiliates" that used Internet links to draw consumers to the retailers' sites in exchange for a fee or commission on any subsequent sales. This affiliate relationship is known as "performance marketing." Typically the affiliate refers Illinois customers to the out-of-state retailer through a link on the affiliate's Web site. In effect, the 2011 Act only applied in the context of online sales made by Internet vendors lacking a physical presence within the state.
In Performance Marketing Association, the...
