South Dakota and Illinois have recently joined a growing number of states that have enacted so-called "Amazon" laws in recent years. While these states have adopted different models of the laws, both are aimed at one end—the collection of sales or use tax on purchases made over the Internet. As discussed below, the South Dakota law follows an information-reporting model that has been previously adopted by Colorado and Oklahoma. The Illinois statute follows the model adopted by New York, North Carolina, and Rhode Island.
Taxpayers who make sales over the Internet should carefully evaluate these laws and monitor future developments. Similar legislation is pending in many other states at this time.
New South Dakota Law Imposes an Information-Provision Requirement
South Dakota Senate Bill 146 was signed into law on March 11 and imposes a transactional-notice requirement on retailers who are not currently registered, and who are not required, to collect and remit South Dakota sales and use tax and who make sales of tangible personal property, services, and products transferred electronically to South Dakota purchasers. That provision requires Internet and catalog retailers to provide South Dakota purchasers with a notice explaining that:
- The retailer is not required and does not collect South Dakota sales or use tax;
- The purchase is subject to state use tax unless specifically exempt;
- The purchase is not exempt merely because it is made over the Internet, by a catalog, or by other remote means;
- The state requires each South Dakota purchaser to report any purchase that was not taxed and pay tax on that purchase;
- The use tax may be reported and paid on the South Dakota use tax form; and
- The use tax form and corresponding instructions are available on the South Dakota Department of Revenue and Regulation website.
The details of the South Dakota law are essentially the same as a similar law passed in Oklahoma last year. Both of these states' statutes require the above-referenced transactional notice, but neither requires an annual statement to customers or an annual report to the state. Those laws are thus more limited than the notification law passed in Colorado last year, as discussed here, which the Colorado Department of Revenue was preliminarily enjoined from enforcing in a decision by a Colorado federal court earlier this year.
Of final note, the South Dakota law also expressly prohibits the application of any criminal penalty or civil liability for failures to comply with the new law. The expected impact of the new law is therefore questionable.
Illinois Governor Signs into Law a New York Style Nexus Provision
As discussed in a previous alert, the Illinois General Assembly passed a New York-style Amazon law in early January. The Illinois governor signed that bill on March 10 after over two months of deliberation. The new law is effective July 1, 2011.
Under the new law, certain remote vendors and service providers who have commission arrangements with in-state parties will be deemed to have nexus with the state for purposes of collecting the state's sales and use tax. That deemed nexus is not rebuttable (unlike the similar New York law), which raises significant questions regarding its constitutionality. Further details of the new law can be found in the alert previously linked. A copy of the Public Act can be found by clicking here.