Written By: Guy Schmitz, J.D., LL.M.

Amazon has agreed to start paying sales tax in Illinois in 2015 because it is opening distribution centers in Illinois.  This may not sound like it is worthy of a blog entry, but it is.  First we’ll cover the history and then the future, all intertwined with nexus and our 51 laboratories (commonly known as the 50 states and the District of Columbia).


The History

In 1992, the United States Supreme Court handed down its opinion in Quill.  Quill was a Delaware corporation that sold office equipment and supplies.  It also had a software program, which allowed a customer to hit a few keys and then get a product in the mail or from a private carrier.  Such software programs are commonplace today, but in the 1990s, Quill’s program was a wondrous thing.  North Dakota, Quill’s opponent in the Supreme Court (and lower courts), was not pleased because Quill was seriously eating into its revenue.  Unnecessary details aside, North Dakota sued Quill for a use tax (the corollary of the sales tax) for products sold to residents in North Dakota.


Quill was presumably advised by some very good accountants and lawyers, because it had:

  • offices and warehouses in Illinois, California, and Georgia, but none in North Dakota;
  • no employees in North Dakota; and
  • little or no tangible property in North Dakota…


…but Quill:

  • did have $1,000,000 of sales in North Dakota from 3,000 online customers in North Dakota;
  • was the sixth largest supplier of office supplies in the state; and
  • sent 24 tons (that is not a typo) of catalogues and other mail into North Dakota.


The Supreme Court held for Quill — despite, for example, the 24 tons of catalogues and other mail — because the court ruled that Quill did not have a physical presence in the state.  The Supremes made it clear, however, that the Congress, through legislation, could overrule Quill.



With the near collapse of our economy in the first (and unlamented) decade of the 21st century, states were desperate for revenue to stay afloat.  Legislators knew that they could not raise the sales and use tax rates unless they wanted to be former legislators.  Instead the departments of revenue of the various states were forced to seek revenue from untapped sources.  In Illinois, Amazon was attacked through its affiliates.  Affiliates had a physical presence in Illinois.  You could (and still can) buy, for example, a new copy of a book from Amazon from out of state or a used copy from an Illinois affiliate at a lower price. Through the Illinois “affiliate nexus” laws, Amazon would have been compelled to collect and remit sales tax to Illinois because the law allegedly secured nexus with Amazon through its Illinois affiliates.  In response to the law, Amazon cut off the Illinois affiliates but lowered its own profits (Amazon’s take from an affiliate’s sale), angering Illinois affiliates and buyers.  This issue is now moot because Amazon is putting distributions centers in Illinois, clearly establishing nexus.  Amazon wants to deliver products to its buyers even faster than it does now.  That means warehouses in proximity to customers.  There has even been talk of drones to deliver products.  What Amazon really wants is for Congress to overrule Quill, allowing states to increase revenue but also allowing Amazon some uniformity of collection.  Amazon doesn’t mind collecting sales and use tax from buyers of its products, but it doesn’t want to calculate and pay over such taxes to thousands of jurisdictions.  (When Quill came down, our 51 laboratories had given us over 6,000 separate taxing jurisdictions [state, local, special].)



Legislation has been introduced in Congress to overrule Quill.  We’ll see what happens.  As said, Amazon favors such legislation, but other retailers do not.  Such dissenting retailers include small retailers who cannot afford the cost of administering the sales tax in various jurisdictions.  There can (and should be) an exemption for small retailers.  Stay tuned.

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