Illinois to Start Taxing Online Sales

NEW YORK (MainStreet) - Illinois Governor Pat Quinn signed a law Thursday requiring online retailers that partner with businesses located in the state to charge sales tax and report the tax revenue they collect.

The law, known as the Mainstreet Fairness Bill, is intended to force online retailers to abide by the same tax standards as brick and mortar businesses. Until now, retailers in Illinois, and in the majority of states, only had to collect sales taxes if they had a physical location in the state, effectively granting e-commerce sites a significant tax loophole.

According to the Illinois Department of Revenue, this law could help the state earn as much as $170 million in previously uncollected sales tax revenue, which should help deal with some of the state’s projected $4.9 billion budget shortfall for the 2012 fiscal year.

“Illinois’ main street businesses are critical to ensuring our long-term economic stability, which is why they must be able to compete with every company doing business online in Illinois,” said Governor Quinn in a statement. “This law will put Illinois-based businesses on a level playing field, protect and create jobs and help us continue to grow in the global marketplace.”

Amazon (Stock Quote: AMZN) in particular, has used the tax loophole to its advantage by shaving off the sales tax amount (6.5% in Illinois) from the final price tag to be more competitive. While Amazon is not technically based in any one state, the site is known to team up with thousands of smaller websites that are. These local websites promote and direct users to products sold on Amazon, and under the new law, these partnerships would be reason enough for Amazon to institute a sales tax.

North Carolina, Colorado and Rhode Island have each passed similar bills, and other states are considering doing so, including California, where many Web companies are based.