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Illinois Supreme Court Upholds Performance Marketing Association Suit

by Missy Ward in Affiliate Marketing  

Illinois Supreme Court Upholds Performance Marketing Association Suit

In case you missed this last Friday, I'm excited to announce that the Illinois Supreme Court affirmed the Performance Marketing Association's victory in its lawsuit, and declared the state's Affiliate Nexus Tax law invalid.

Advertisers who previously terminated relationships with their Illinois affiliates can reinstate them which means Illinois affiliate marketers can get back in business!

The PMA's attorneys issued this statement:

The ruling by the Illinois Supreme Court that Public Act 96-1544 is “void and unenforceable” results in a judicial finding that the statute was never legally valid and, therefore, it is not currently in effect.  This means that advertisers are free to reinstate their Illinois affiliates whose contracts were terminated out of fear of the “click through” nexus law.  Of course, advertisers must still be wary of any additional activity that may be conducted by web affiliates on their behalf, such as active solicitation of prospective customers and other in-state promotional efforts.  The court ruling does not displace, or supersede, traditional, physical-presence nexus standards.  If Illinois affiliates engage in activities that go beyond the posting of Internet links, there remains the risk that those affiliates could create nexus for out-of-state retailers under existing nexus principles that are unrelated to the statutory provision that was struck down by the state Supreme Court. 

Heartfelt Thank You's are Owed!

A giant thank you goes out to all of the members of the Performance Marketing Association who worked so hard to make this happen.

Most importantly, I'd like to personally thank each and every person who financially supported the PMA so that they could win this fight on behalf of all affiliate marketers.

Lastly, I urge each and every one of you to make a donation to the Performance Marketing Fairness Fund which supplies the PMA with the much-needed financial resources in order for them to fund the legal expenses against legislation that affects the livings of thousands of performance marketers.

Even if it's just 50 bucks it helps! As an industry, we all have to do our part rather than hope that others will take care of us.

The Press Release

Here is the full Press Release issued by the Performance Marketing Association:

Performance Marketing Association Wins Suit Challenging Validity of Illinois Affiliate Nexus Law

Supreme Court Upholds 2012 Circuit Court Decision

 

CAMARILLO, CALIFORNIA, OCTOBER 18, 2013 – The Performance Marketing Association (PMA) today received news that the Illinois Supreme Court reaffirmed the circuit court decision, declaring that the state’s “affiliate nexus tax” law is invalid. In 2011, the PMA filed a lawsuit against the Illinois Department of Revenue, challenging the constitutionality of a newly enacted Illinois law that would be financially devastating to thousands of the state’s small businesses, forcing them to downsize, relocate or close their doors. This law, also known as the “Amazon Tax” or “Mainstreet Fairness Bill” redefined the state’s definition of the relationship between out-of-state retailers and in-state performance marketing affiliates, also known as publishers.  The law asserted that a nexus, or physical presence, is created when these retailers work with Illinois-based affiliates who engage in certain activities, and therefore requires retailers to collect Illinois state sales tax.  The PMA contended that this law unfairly discriminated against Internet-based performance marketers, severely harmed Illinois affiliates resulting in a devastating loss of income, and exceeded the state’s power to regulate interstate commerce and is therefore unconstitutional.

In its decision, the Illinois Supreme Court agreed that the challenged statute is invalid. The court agreed with the PMA that advertising via performance marketing affiliates does not give rise to tax obligations and is therefore a discriminatory tax on Internet commerce. Discriminatory taxes on Internet commerce are prohibited by federal legislation, known as the Internet Tax Freedom Act (ITFA). This case is the first to uphold the ITFA.

According to the PMA, Illinois-based affiliates numbered at least 9,000 and in 2010 generated $744 million in advertising revenue.  When the law took effect in 2011, those affiliates experienced economic devastation when out-of-state retailers, wanting to avoid sales tax collection obligations, simply terminate their relationships with affiliates.  In fact, the PMA estimates about 1/3 left the state, 1/3 downsized, and 1/3 went out of business.

We are ecstatic!” said Rebecca Madigan, Executive Director of the PMA.  “We are now looking forward to those 9,000 affiliate marketers getting back in business in Illinois. About 1,000 out-of-state merchants can now reinstate their advertising agreements with Illinois-based affiliate marketers, without threat of getting trapped with nexus.” Madigan continues, “Unfortunately, 12 other states passed similar laws, devastating over 90,000 small businesses around the country. We hope this decision helps other states avoid this kind of costly litigation and the damage to a thriving small business sector.”

Proponents of this law claimed that the law leveled the playing field between online merchants and brick-and-mortar retailers because both would now be required to remit a user tax.  The goal is to add new tax revenue to state coffers, but the PMA noted that the opposite actually occurred as online retailers opted to dissolve relationships rather than collect state sales tax.

“This was a lose-lose situation for the state,” added Madigan.  “The state collected no new use tax revenue from those retailers that terminated their relationships with local Illinois affiliates, and the affiliates themselves lost millions of dollars in advertising revenue.  That means less income tax revenue for the state and fewer jobs for the people of Illinois.  Proponents of the nexus tax would have you believe that they have small business interests at heart, but the truth is, the nexus tax law hurt small businesses and unfairly discriminated against one of the fastest growing market segments in the nation.”

According to Madigan, there are more than 200,000 online affiliates operating nationwide. Performance marketing is an advertising model whereby an independent affiliate receives a referral fee or payment from an online retailer when visitors to the affiliate’s website use links and banners to navigate to and subsequently purchase products on the retailer’s site.  Affiliate marketers do not sell products or collect money from consumers.  Affiliates do not deliver products or services, and there is no ownership or business relationship between affiliates and merchants beyond a limited advertising agreement.

The PMA filed its original complaint with the United States District Court, Northern District on behalf of its members in an effort to reverse the Illinois affiliate nexus tax and to set a precedent for other states considering similar measures.  According to the PMA, the law exceeded the limits of the state’s power to regulate interstate commerce under the Commerce Clause, as established in the 1992 Supreme Court ruling in Quill Corp. v. North Dakota, which states that a state cannot impose a tax on a company if it does not have a physical presence in that state. Additionally, the PMA asserted the law discriminates against electronic commerce in violation of the Internet Tax Freedom Act, which states that Internet sales cannot be discriminated against with Internet-only taxes.

The Illinois Supreme Court decision can be found here:

Summary: http://www.state.il.us/court/Opinions/SupremeCourt/2013/Summaries/114496s.htm

Full Decision: http://www.state.il.us/court/Opinions/SupremeCourt/2013/114496.pdf

The Performance Marketing Association (PMA) is a not-for-profit trade association founded in 2008 to connect, inform and advocate on behalf of performance marketing, a multi-billion-dollar marketing channel, which comprises more than 200,000 businesses and individuals. Continued growth of the performance marketing space is expected as advertisers, facing small budgets and big expectations, increasingly look to performance-based marketing initiatives to expand their business. Additional information is available at: http://www.thepma.org.

Media Contacts:

Rachel Guillot, 785.822.8986

Media  | Performance Marketing Association

rachelg@performancemarketingassociation.com

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Missy Ward

Co-Founder & President at Affiliate Summit, Inc.
Missy Ward has been in affiliate marketing since 1999. She is the Co-Founder of Affiliate Summit, FeedFront Magazine, GeekCast.fm, itsaWAHMthing.com; the Co-Publisher of Revenews.com, Founder of AffiliateMarketersGiveBack.com and manages many of her own affiliate sites. If she's not making money through affiliate links on the post you're currently reading, it's an oversight on her part and it will be corrected soon.

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