Illinois Amends Click-through Nexus Legislation in Wake of Supreme Court Ruling

The Illinois Supreme Court ruled the State’s click-through nexus law void and unenforceable in October 2013. This ruling was based on the conclusion that the law was discriminatory towards electronic commerce. Effective July 1, 2011, Illinois amended the definition of a “retailer maintaining a place of business in this State” to include “a retailer having a contract with a person located in this State under which the person, for a commission or other consideration based upon the sale of tangible personal property by the retailer, directly, or indirectly refers potential customers to the retailer by a link on the person’s Internet website”. The last 8 words of this phrase is what caused the Court to rule the law as discriminatory against electronic retailers because it did not include language relating to other forms of marketing, including print media or broadcasting.

In response to the Court’s ruling, on August 26, 2014, S.B. 352 was passed with provisions of the bill to include out-of-state retailers that use referring activities such as an Internet link, a promotional code distributed through hand-delivered or mailed material or promotional codes distributed by persons through broadcast media. Similar to the July 1, 2011 amendment, the amended bill includes a provision that the cumulative gross receipts from sales related to the above mentioned contracts must exceed $10,000 during the preceding four quarters.

The Bill also states a retailer is presumed to have nexus if they meet these requirements, however, this presumption can be rebutted by showing that “the referrals or other activities pursued within this State by such persons were not sufficient to meet the nexus standard of the United States Constitution during the preceding four quarterly periods”. The purpose of the rebuttal statement is to hopefully resolve any due process constitutional concerns. While the constitutionality of the bill was not brought up in the recent court case, it is safe to say at some point it would have been and it appears Illinois is trying to avoid another defeat.

It is hard to say how heavily Illinois will choose to pursue cases involving out-of-state retailers utilizing in-state print media or broadcasting, however, we can be sure they will continue to pursue electronic retailers using internet links. If you think you fall into either of these categories please contact your tax advisor to discuss how this may affect your business.