Performance Marketing Association Picks Up Nexus Gauntlet

Tired of waiting for states to do the right thing, today the Performance Marketing Association (PMA) filed suit in United States District Court challenging the constitutionality of the recently enacted Illinois’ law outlined in House Bill 3659.

ReveNews Managing Editor Angel Djambazov had the opportunity to speak with Rebecca Madigan, PMA’s Executive Director this morning shortly after the announcement:

Angel: “Are you filing the suit in conjunction with anyone?”

Rebecca: “No. We investigated a lot of options and elected to file in federal court because of its influence over other states and they hear constitutional cases.”

Angel: “PMA is arguing that the Illinois law is in violation of the Internet Tax Freedom Act, correct?”

Rebecca: “The ITFA says you cannot levy a tax exclusive to the internet. If you are targeting affiliates solely then it is a tax that is violation of that Act, it’s a direct violation of the Commerce Clause and flies in the face of decisions already established by the Supreme Court.

It’s a big step for us and the industry because we really need to start defending ourselves. We are being victimized by these laws. It has been proven that they generate no money for the states, by the admission of the states who have passed such legislation themselves, so why are legislators continuing to pass these laws?”

With the lobbying dollars of big box retailers like Walmart and Target behind such legislation, Rebecca’s question is mostly rhetorical.

In its suit, PMA outlines three areas it believes the new Illinois’ law violates exiting federal law:

1) Substantial Nexus: Advertising, including links to websites, for out-of-state retailers does not establish substantial nexus, according to the Commerce Clause. The PMA suit argues that by imposing tax obligations on businesses whose sole connection to the out-of-state retailer is advertising, violates the Commerce Clause.

2) Regulating Out-of-State Commerce: The law enacted by HB 3659 implies that Illinois has regulatory authority over transactions between non-Illinois retailers and consumers. Again, according the Commerce Clause, Illinois’ law violates federal law by attempting to regulate interstate commerce.

3) Internet Tax Freedom Act: As Madigan outlined earlier, the ITFA does not allow for levying a tax exclusive to the Internet. Because HB 3659 does not obligate all retailers who generate transaction through other non-local advertising, it’s singling out Internet commerce, which violates the Act.

Through this suit, the PMA plans to defend the rights of the 9,000 business owners in Illinois and set precedent for other states seeking to pass similar nexus laws. Besides hurting the individual business owners, PMA also believes that the states themselves are hurt by such efforts.

In 2010 these affiliates generated $744 million in advertising revenue. If HB 3659 takes effect on July 1 as scheduled, those affiliates will be in jeopardy, as will the $22 million in state income tax they generate annually.

Just one week after the law passes in Illinois several major affiliates like FatWallet, who projected $4 million in lost revenue due to the tax, were forced to move out of state.

What comes next is anyone’s guess, but by picking up the gauntlet, PMA has shown that it and its members are no longer willing to be a punching bag for the misguided efforts of a few and the unwillingness to take a stand by politicians like Illinois Governor Pat Quinn.

About Britt Raybould

Britt Raybould has a passion for telling stories and she specializes in helping companies figure out how to tell their own stories. Through her firm, Write Bold, she shows companies how storytelling can define them, both to their customers and within their industry. When she remembers to, Britt blogs on her personal sites at bold-words.com and brittraybould.com. You can find Britt on Twitter @britter.

Twitter: britter

5 Responses to Performance Marketing Association Picks Up Nexus Gauntlet

  1. Kellie Stevens says:

    This is great news. Hats off to the PMA for aggressively fighting these nexus laws which negatively impact affiliate marketing.

  2. Jim Kukral says:

    Booms goes the dynamite! Consider me impressed. My hat is off to the PMA.

  3. Pat Grady says:

    Truly outstanding action by the PMA!

  4. I am glad to see our industry mount a constitutional challenge in a federal court.  A win in that venue would put a serious damper on other states that are either considering, or are in the process of pushing through unfair affiliate-impacting tax laws.

  5. […] on to declare that nexus wasn’t established by the activity outlined in the statute. The case was originally filed by the Performance Marketing Association (PMA): In addition, the Judge agreed with the PMA’s […]