Yesterday, New Jersey Governor Chris Christie announced that he is coming to Illinois next week to convince Illinois businesses to move to his state. Since it was passed by the Illinois General Assembly earlier this month, the increase in the Illinois corporate income tax from 4.8 to 7.0 percent mostly had only governors of Illinois’ neighboring states licking their chops. But now, Christie, the head of a state known more as the vacation home of “The Situation” and “Snookie” and for not paying their pension obligations thinks that even he has a chance to romance some Illinois companies. Over the next few days, the actions of Christie and the other raiders/governors may influence Illinois Governor Pat Quinn’s decision on signing HB (House Bill) 3659.
HB3659 was passed by both chambers of the Illinois General Assembly in the waning days of the lame duck session held in Springfield earlier this month. In terms of notoriety, it was easily overshadowed by the corporate (and personal) income tax hikes. But it had tremendous impact on a number of small companies and one really big one – Amazon.com.
The gist of HB3659 is that it levels the playing field for traditional retailers by requiring companies that make sales through website referrals from Illinois-based agents to collect and pay Illinois sales tax. Considering that Illinois has a $15 billion budget deficit, it seems like a good deal for the state. The problem is that the bill takes direct aim at the Amazon.com Associate Program.
HB3659 would classify Amazon.com as having a physical presence in the state because of the Amazon.com Associate Program, which has the exact, previously described sales referral structure. As a defiant rebuttal to HB3659, Amazon has threatened to eliminate their entire Illinois affiliate program, as it did in Colorado when that state enacted a similar law. It would also include Illinois firms that refer business to Amazon’s Endless.com and Smallparts.com businesses with an additional fear of companies such as Overstock.com following Amazon’s lead.
Amazon’s Illinois associates includes small companies that are clearly more than “mom & pop” operations. For example, FatWallet.com has 52 employees and BradsDeals.com has 20 employees. The elimination of the program could result in substantial job losses for Illinois if a horde of Amazon associates shut-down or reduce staff.
Illinois cannot afford for that to happen. According to a recent U.S. Bureau of Labor Statistics report on metropolitan area job losses and gains from November 2009 to November 2010, the Chicago – Joliet – Naperville metropolitan area was the worst in the nation, losing 52,100 non-farming jobs during that period. Even more surprising is that even the information sector for that metropolitan area lost 200 jobs during that period.
Continuing to use the Chicago – Joliet - Naperville metropolitan area as an example, an economic recovery started in 2010. In January of 2010, the unemployment rate was 11.1 percent. By December of 2010, it fell to 9.3 percent (which was the same as the rate for the entire state).
The corporate tax increase and signing HB3659 could spin that trend 180 degrees. It would be stoked by governors of other states, like Christie, running ads and sending in economic development teams to relocate large and small Illinois companies.
If small business and the technology sector are the true engines of the new economy, maybe Governor Quinn will reconsider signing HB3659. If he does sign it, Illinois CEOs should prepare to be romanced – except instead of chocolates and roses, the temptations will be tax incentives and training grants.
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