Performance Marketing Ass’n v. Hamer, 2013 IL 114496
Direct appeal from the circuit court of Cook County.
JUSTICE BURKE delivered the judgment of the court, with opinion.
Chief Justice Kilbride and Justices Freeman, Thomas, Garman, and Theis concurred in the judgment and opinion.
Justice Karmeier dissented, with opinion.
The ability of out-of-state merchants to make sales to Illinois consumers without collecting and remitting sales or use taxes to the State of Illinois caused Illinois retailers, large and small, to ask the state legislature to “level the playing field.” The result was a taxing statute that became effective in 2011 and which has been called the “click-through” nexus law.
The plaintiff in this case is a trade group whose activities are impacted by this statute. “Performance marketing” refers to programs in which the display of advertising is paid for when a specific action, such as a sale, is completed. The clicking and the making of a sale can be tracked by means of codes. In an internet transaction, the publisher of an advertisement, or so-called “internet affiliate,” displays on its website texts or images, such as a retailer’s logo, containing a link to a retailer’s website and then is compensated by the retailer when a consumer clicks on the link and makes a purchase from the retailer. Out-of-state retailers who use such arrangements to generate sales of over $10,000 per year become subject to the obligation to collect and remit use tax under this statute.
On the federal level, discriminatory taxes on electronic commerce have been prohibited by the Internet Tax Freedom Act. This, and the commerce clause of the United States Constitution, are the basis of a challenge brought to the Illinois statute by the trade group, Performance Marketing Association, Inc., in the circuit court of Cook County. Plaintiff obtained an invalidation of this Illinois statute from the circuit court in its action for declaratory and injunctive relief.
In this decision, the Illinois Supreme Court agreed that the challenged statute is invalid. The court noted that “performance marketing,” when engaged in through print media or on-the-air broadcasting, does not give rise to tax obligations under the Illinois statute. This enactment is therefore a discriminatory tax on electronic commerce within the meaning of federal law, which preempts it. The Illinois Supreme Court did not reach the commerce clause issue. The circuit court was upheld.