On August 26, Illinois Governor Pat Quinn approved legislation that amends the state’s sales and use tax click-through nexus statutes. In 2013, the Illinois Supreme Court held in Performance Marketing Association, Inc. v. Hamer that the state’s click-through nexus statutes were void and unenforceable due to the federal prohibition against discriminatory state taxes on electronic commerce contained in the Internet Tax Freedom Act (ITFA).The legislation addresses this decision by expanding the nexus provisions to include situations where potential customers are referred to out-of-state retailers by a promotional code or other mechanism beyond an Internet link that allows the retailer to track purchases. Also, the legislation adds provisions that permit the retailer to rebut the presumption of nexus. This legislation is effective January 1, 2015.

1. State & Local Tax Alert
Breaking state and local tax developments from Grant Thornton LLP
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Illinois Amends Click-Through Nexus Statutes to Address Internet
Tax Freedom Act Violation
On August 26, Illinois Governor Pat Quinn approved legislation that amends the state’s
sales and use tax click-through nexus statutes.1 In 2013, the Illinois Supreme Court held
in Performance Marketing Association, Inc. v. Hamer that the state’s click-through nexus statutes
were void and unenforceable due to the federal prohibition against discriminatory state
taxes on electronic commerce contained in the Internet Tax Freedom Act (ITFA).2 The
legislation addresses this decision by expanding the nexus provisions to include situations
where potential customers are referred to out-of-state retailers by a promotional code or
other mechanism beyond an Internet link that allows the retailer to track purchases. Also,
the legislation adds provisions that permit the retailer to rebut the presumption of nexus.
This legislation is effective January 1, 2015.
Background
In 2011, Illinois enacted click-through nexus legislation (the “2011 Act”) that required
certain out-of-state retailers to collect and remit Illinois sale or use tax on items and
services sold for use in Illinois through in-state “affiliates.”3 The 2011 Act targeted out-of-
.
state retailers which entered into agreements with in-state “affiliates” that used Internet
links to draw consumers to the retailers’ sites in exchange for a fee or commission on any
subsequent sales. This affiliate relationship is known as “performance marketing.”
Typically the affiliate refers Illinois customers to the out-of-state retailer through a link on
the affiliate’s Web site. In effect, the 2011 Act only applied in the context of online sales
made by Internet vendors lacking a physical presence within the state.
In Performance Marketing Association, the Illinois Supreme Court held that the 2011 Act was
preempted under the Supremacy Clause of the U.S. Constitution because the 2011 Act
imposed a discriminatory tax on electronic commerce4 contrary to the provisions
contained in the ITFA. The ITFA defines a discriminatory tax to include an obligation to
1 P.A. 98-1089 (S.B. 352), Laws 2014, effective Jan. 1, 2015.
2 998 N.E.2d 54 (Ill. 2013). For a discussion of this case, see GT SALT Alert: Illinois Supreme
Court Holds Click-Through Nexus Statute Preempted by Internet Tax Freedom Act.
3 P.A. 96-1544 (H.B. 3659), Laws 2011; 35 ILL. COMP. STAT. 105/2; 35 ILL. COMP. STAT. 110/2.
4 “Electronic commerce” means “any transaction conducted over the Internet or through Internet
access, comprising the sale, lease, license, offer, or delivery of property, goods, services, or
information, whether or not for consideration, and includes the provision of Internet access.” 47
U.S.C. § 151 at § 1105(3).
Release date
September 9, 2014
States
Illinois
Issue/Topic
Sales and Use Tax
Contact details
Keith Staats
Chicago
T 312.602.8629
E keith.staats@us.gt.com
Paul Bogdanski
Chicago
T 312.602.8269
E paul.bogdanski@us.gt.com
Jamie C. Yesnowitz
Washington, DC
T 202.521.1504
E jamie.yesnowitz@us.gt.com
Chuck Jones
Chicago
T 312.602.8517
E chuck.jones@us.gt.com
Lori Stolly
Cincinnati
T 513.345.4540
E lori.stolly@us.gt.com
www.GrantThornton.com/SALT

2. But Grant Thornton LLP - 2
collect and remit sales tax on an Internet transaction in a different manner than if the same
transaction had occurred as a traditional face-to-face purchase.5 The Court found that
because the 2011 Act was in direct conflict with the ITFA, it was expressly preempted and
was void and unenforceable. The taxpayer also argued that the 2011 Act violated the
Commerce Clause of the U.S. Constitution by imposing a tax on retailers that had no
physical presence in Illinois and by being unduly burdensome to interstate commerce.
However, the Court declined to evaluate the merits of the Commerce Clause arguments.
Nexus Standard Amended
The statutes continue to provide that retailers are present in Illinois and therefore, must
collect and remit tax if they contract with a person located in the state who, for a
commission or other consideration based upon the sale of tangible personal property or
services, refers potential customers to the retailer.6 Prior to amendment, the referrals were
limited to the use of a link on the person’s Internet Web site. As amended, the statutes
now include referrals by providing to the potential customers a promotional code or other
mechanism that allows the retailer to track purchases referred by such persons. Examples
of this type of mechanism include but are not limited to the use of a link on the person’s
Internet Web site, promotional codes distributed through the person’s hand-delivered or
mailed material, and promotional codes distributed by the person through radio or other
broadcast media. As before, this provision only applies if the cumulative gross receipts
from sales to customers in Illinois who are referred to retailers under these contracts
exceed $10,000 during the preceding four quarterly periods.
Under a new provision, a retailer that meets these requirements is presumed to be
maintaining a place of business in Illinois but may rebut this presumption by submitting
proof that the referrals or other activities pursued within the state were not sufficient to
meet the nexus standards of the U.S. Constitution during the preceding four quarterly
periods.7
Commentary
The Performance Marketing Association case was significant because this was the first (and to
date, the only) instance that a state’s high court has struck down a click-through nexus
statute for violating the ITFA. The newly enacted Illinois legislation is an effort to amend
the Illinois click-through nexus provisions so that they no longer violate the federal
prohibition against discriminatory state taxes on electronic commerce contained in the
ITFA. The provisions are expanded to include potential customer referrals through
promotional codes that do not constitute electronic commerce. Thus, this arguably will no
longer be a discriminatory tax that violates ITFA because electronic commerce
transactions are not treated differently than transactions that are not conducted
electronically. Although the Illinois Supreme Court did not address the statutes’ lack of a
rebuttable presumption, the legislation further strengthens the statutes by adding a
rebuttable presumption that frequently is a feature of the click-through nexus legislation
5 A discriminatory tax “imposes an obligation to collect or pay the tax on a different person or
entity than in the case of transactions involving similar property, goods, services, or information
accomplished through other means.” 47 U.S.C. § 151 at § 1105(2)(A)(iii).
6 35 ILL. COMP. STAT. 105/2; 35 ILL. COMP. STAT. 110/2.
7 Id.

3. But Grant Thornton LLP - 3
enacted by other states.8 Under this provision, retailers can offer proof that they do not
have sufficient nexus with the state under the U.S. Constitution and should not be subject
to its tax.
This amendment may have cured the ITFA violation, but it remains to be seen whether
the new statute is constitutionally flawed in other respects. For example, the specific
addition of language to include promotional codes distributed by mail or broadcast media
may create a Commerce Clause violation that is not present in other states’ click-through
nexus statutes. Additionally, as noted above, the plaintiff in the Performance Marketing
Association case raised a Commerce Clause challenge to the state’s original click-through
nexus statute, which the Illinois Supreme Court did not address in its opinion. Thus, it
appears likely that the amended statute may be subject additional scrutiny in the future.
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8 For example, the click-through nexus legislation enacted by the following states provides retailers
with an opportunity to rebut the nexus presumption: Arkansas (ARK. CODE ANN. § 26-52-117(e));
California (CAL. REV. & TAX. CODE § 6203(c)(5)(E)); Georgia (GA. CODE ANN. § 48-8-2(8)(M));
Kansas (KAN. STAT. ANN. § 79-3702(h)(2)(C)); Maine (ME. REV. STAT. ANN., tit. 36, § 1754-B(1-
A)(C)); Minnesota (MINN. STAT. § 297A.66(4a)); Missouri (MO. REV. STAT. § 144.605(2)(e), (f));
New Jersey (N.J. REV. STAT. § 54:32B-2(i)(1)(C)); New York (N.Y. TAX LAW § 1101(b)(8)(vi));
North Carolina (N.C. GEN. STAT. § 105-164.8(b)(3)); and Rhode Island (R.I. GEN. LAWS § 44-18-
15(a)(2)).