The Supreme Court of Illinois recently affirmed a lower court’s ruling that the state’s click-through nexus legislation was preempted by a federal law governing taxes placed on electronic commerce.

In 2011, the Illinois General Assembly enacted Public Act 96-1544,1 which added new click-through nexus legislation and sought to tax a common contractual arrangement known as “performance marketing.” In performance marketing, an online retailer contracts with an individual to place hyperlinks for a retailer’s website in consumer-targeted or high-volume areas, as a means for creating online presence and directing potential customers to the retailer’s website. Illinois’s legislation sought to establish nexus with retailers making more than $10,000 per year through performance marketing relationships.

The Performance Marketing Association, Inc. (“PMA”) filed a complaint against the representative for the Illinois Department of Revenue, seeking declaratory and injunctive relief from the click-through nexus element in Public Act 96-1544. The circuit court of Cook County sided with PMA, finding that the click-through nexus legislation was preempted by the Internet Tax Freedom Act (ITFA), 2 which prohibits “multiple discriminatory taxes on electronic commerce.” Accordingly, the circuit court granted PMA’s motion for summary judgment. Read More