On May 11, 2012, Judge Robert Lopez Cepero of the Illinois Circuit Court for Cook County, entered a written order (“May 11 Order”) granting summary judgment to the Performance Marketing Association (“PMA”) in its challenge to the 2011 Illinois affiliate nexus statute. The Court ruled that the Illinois law fails the “substantial nexus” requirement for state taxes under the Commerce Clause and violates the federal moratorium on state taxes that discriminate against electronic commerce under the Internet Tax Freedom Act (“ITFA”). The Court’s May 11 Order memorializes Judge Cepero’s ruling from the bench after oral argument on April 25, 2012, previously reported in our blog on April 26.(The May 11 Order is styled an “Amended Order,” because it addresses certain technical requirements of a local Illinois Supreme Court Rule not originally addressed in a written order issued by the Court on May 7, 2012.)
The Illinois affiliate nexus statute by its terms imposed an obligation to collect Illinois use tax on any out-of-state Internet retailer that enters into a contract with an Illinois Internet affiliate for a link on the affiliate’s website that connects Internet users to the e-retailer’s website, where the affiliate is compensated based on sales made by the retailer to such customers, and the total receipts by the retailer resulting from all such sales is in excess of $10,000. In striking down the law as unconstitutional, the Court concluded that such affiliate relationships are insufficient to create nexus and that, by failing the “substantial nexus” test, the statute is “facially invalid and unenforceable.” May 11 Order at para. 1.a.
The May 11 Order makes clear that the Defendant, the Director of the Illinois Department of Revenue, has 30 days from the date of the order, or until June 11, 2012, to appeal the ruling directly to the Illinois Supreme Court. The State is expected to appeal.
George Isaacson and Matt Schaefer of Brann & Isaacson represent the PMA in the case.
