Working up a tax storm in Illinois

Working up a tax storm in Illinois

George Will
Washington Post
May 1, 2011

Tim Storm, an Illinois businessman until a few weeks ago, is now a Wisconsin businessman. Herewith a story about how states can reduce revenue by trying to increase them and about the economic benefits of federalism.

Storm, 42, is founder and chief executive of FatWallet.com. The company, until recently one of about 9,000 Illinois “affiliates” of Amazon.com, directs online shoppers to online retailers, which often pay affiliates commissions for referrals that result in sales. Storm’s company, which has 54 employees, used to be located in Rockton, Ill., but now is five miles up the road in Beloit, Wis.

One reason online sales are brisk is that the retailers are not required to collect state sales taxes. In 1992, the U.S. Supreme Court held that such taxes must be collected only by companies that have a “substantial nexus” — basically, a brick-and-mortar presence — in the state. Under this rule, Amazon collects sales taxes in only five states.

Illinois, comprehensively misgoverned and ravenous for revenue, has enacted what has come to be called an “Amazon tax.” It requires Amazon and other online retailers to collect the state’s sales tax. Amazon and many other retailers responded by severing their connections with their Illinois affiliates.

Storm responded by relocating to Beloit. No one knows how many other Illinois affiliates of the thousands of online retailers — transactions with Amazon are less than 1 percent of FatWallet’s business — will lose revenue, pay less in taxes, cut jobs or leave the state. When Texas sent Amazon a bill for $269 million because of the “nexus” of its Dallas warehouse, Amazon decided to close the warehouse.

Hoping to turn the states’ budget crises to their advantage, Wal-Mart, Target and other large retailers are funding a coalition called Alliance for Main Street Fairness to lobby for measures — perhaps federal legislation — to require Amazon and other online retailers to collect sales taxes. This supposedly would serve fairness by leveling the playing field.

Most online retailers would, however, retain the advantages of convenience — shoppers do not need to drive to the store — and the price advantages of not having to pay the cost of brick-and-mortar stores. But the stores have the competitive advantage of local loyalties and customers being able to handle merchandise.

Besides, Main Street stores pay sales taxes to support local police, fire and rescue, sewage, schools and other services. If Amazon’s Seattle headquarters catches fire, will Champaign, Ill., firefighters extinguish it? And as Boston Globe columnist Jeff Jacoby notes, “A Pennsylvania tobacco shop doesn’t collect Ohio sales taxes whenever it sells a humidor to a visitor from Ohio.”

Federalism — which serves the ability of businesses to move to greener pastures — puts state and local politicians under pressure, but that is where they should be, lest they treat businesses as hostages that can be abused. According to the Tax Foundation, Illinois has not only the fourth-highest combined national-local corporate income tax in the nation but also in the industrialized world. In Peoria, Doug Oberhelman, chief executive of Caterpillar, has told Illinois Gov. Pat Quinn that he is being “wined and dined” by other governors and their representatives encouraging Caterpillar to invest in their states.

It recently picked Muncie, Ind., for a major manufacturing plant. Says Indiana Gov. Mitch Daniels of his neighboring state, “It’s like living next door to ‘The Simpsons’ — you know, the dysfunctional family down the block.”

A study by the Illinois Policy Institute, a market-oriented think tank, concludes that between 1991 and 2009, Illinois lost more than 1.2 million residents — more than one every 10 minutes — to other states. Between 1995 and 2007, the total net income leaving Illinois was $23.5 billion. The five states receiving most refugees from Illinois were Florida, Indiana, Wisconsin, Arizona and Texas. Two are Illinois’ neighbors, three have warm weather, two — Florida and Texas — have no income tax. In January, a lame-duck session of Illinois’ legislature — including 18 Democrats who were defeated in November — raised the personal income tax 67 percent and the corporate tax almost 50 percent. This and the increase — from 3 percent to 5 percent — in the tax on small businesses make Illinois, as the Wall Street Journal says, “one of the most expensive places in the world to conduct business.”

Tim Storm’s presence in Beloit demonstrates how American federalism gives force to a familiar axiom: Businesses go where they are welcome and stay where they are well-treated.

You would think our federal representatives might take a lesson from scenes like this occurring in places like Illinois, California, New York and, until Christie came along, New Jersey.

But noooooooo... they don't learn a thing and keep pressing to tax US multinational corporations at ever higher rates through the corporate income tax, capital gains taxes, windfall profits taxes, and other indirect taxation through the enforcement of things like carbon-based regulations that increase costs to businesses as well as Obama-care, which also increases costs to businesses! It's sheer insanity!

And these same idiotic politicians then scream and holler about these "evil" corporations shipping jobs and even their business operations offshore just to simply remain competitive in the world market!

Well what the fuck did they expect these businesses to do???

The story above shows what happens when states abuse businesses - did they think this couldn't apply on a national level?!?!? How stupid does one have to be not to pick up on this?!?!?

Oh... right... they're politicians.

dblboggie wrote:Well what the fuck did they expect these businesses to do???

Take it in the ass. Seriously. I've read so many comments on the internet by people in various places (story comments by the average Joe) and many just don't get it. We even have higher corporate taxes than in Europe, I believe. Then there's the massive gov't regulations and tax codes. Oh.... and unions.

You believe correctly. America now stands in the unenviable position as #1 amongst the industrialized nations with respect to our corporate tax burden. It used to be Japan, but they recently lowered their corporate tax rates in the wake of their recent disaster.

And you are quite right in recognizing the tremendous financial burdens the tax code and government regulations represent to all businesses large and small. Businesses spend countless billions on trying to stay in compliance with tax laws and needless regulations. These are billions of wasted dollars which only makes their products and services even more expensive and less competitive in the international marketplace.

It is a disgrace that average Americans have hoodwinked by their politicians and mainstream media - and even more disgraceful that generations of American's are being kept ignorant of these facts by an educational system that could best be described as little more than centers for indoctrination on the goodness of big government.

I'm currently reading two books on early American history (one a textbook, one a more scholarly work), and we have fallen so very, very, very far from our founding principles it takes my breath away.

Regulations are killers. There's certain ones that are a given... like where I work. Of course you have to have USDA inspectors in meat processing facilities. You have to have strict cleanliness regulations when dealing with food (for example).