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Illinois Rules “Click Through” Nexus Law Void

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With the “Click Through” Nexus debate at its peak, Illinois threw the state and local tax (“SALT”) community a curve ball with its recent ruling in Performance Marketing Association v. Hamer. Similar to most states, Illinois has a nexus law that requires any business with a place of business in Illinois to collect and remit tax to Illinois. In 2011, Illinois enacted its so-called “click through” nexus law that requires a business to collect and remit tax if it has contact with a person in Illinois who refers customers to the business’s website for a commission. In this case, the trade group believed the law to be unfair, so it challenged it in court.

This case is strikingly similar to the Amazon and Overstock cases going on throughout the country. Of note, on March 28, 2013, Overtstock and Amazon lost in New York’s highest court. Specifically, the court determined that such a law did violate the federal Commerce Clause. Amazon and Overstock do not believe New York got it right. In fact, the two online retail juggernauts have decided to appeal the issue to the United States Supreme Court. As of today, the Supreme Court has not decided whether to hear the case or not.

Turning back to the Illinois case, the issue made it to the Illinois Supreme Court. Somewhat unique to this seemingly run of the mill "click through" nexus case was that the association raised a few arguments. First, it argued, like every other “click through” nexus case, that the law ran afoul to the Commerce Clause. More interestingly, it also alleged that this law was preempted by the Internet Tax Freedom Act (“ITFA”).

The Internet Tax Freedom Act is a complex piece of federal legislation. In short, the IFTA prohibits a state from imposing a “discriminatory tax on electronic commerce.” Conceptually, Congress, rather than the states, is better suited to regulate national sales mediums such as the mail and the Internet. As such, the states cannot make laws that interfere with national or interstate commerce. The gist of the argument was that online retailers were being treated differently (discrimination) than typical brick and mortar retailers. Shockingly, the Illinois Supreme Court bought the argument and ruled in favor of the trade association.

This ruling doesn’t just mark an important victory for online retailers, but also for SALT professionals throughout the country. Overall, the online retailers have been largely unsuccessful in striking down similar “click-through” nexus type laws. From a SALT professional’s perspective, this also adds an interesting and somewhat unique argument to the mix. Without getting overly technical, SALT professionals often argue, and lose, that click-through nexus laws violate the commerce clause. This case may show a different avenue to strike down nexus laws that burden our clients. At the very least I will be including and arguing it in my court briefs, and I will remain hopeful that courts, like Illinois, will buy the argument. This case also may create different views from states on similar laws which may encourage the Supreme Court to finally hear a sales tax case for the first time in 20 years.

About the Author: Mr. Donnini is a multi-state sales and use tax attorney and a shareholder in the law firm Moffa, Sutton & Donnini, PA, based in Fort Lauderdale, Florida. Mr. Donnini’s primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini earned his LL.M. in Taxation at NYU. He is also a co-author of the CCH Expert Treatise Library: State Sales and Use Taxation. Please feel free to visit his firm’s web-site or his blog .

Questions? If you have any questions please do not hesitate to contact him via email at or call 954-642-9390.

Other recent “Sales Tax Nexus” posts by Jerry Donnini:

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