It looks like the “Amazon tax” is a bigger issue than it first appears to be. The PMA, a business group with members as diverse as Amazon, FatWallet, Ebates, Dell, and Ebay, is suing the state of Illinois to challenge the constitutionality of House Bill 3659, Illinois’ attempt to collect sales taxes from internet retailers.

I’m sure you’ve been following this issue, and at first glance it doesn’t appear to affect more than small time affiliates. But the issue is bigger than that. The PMA believes that the new law will cost the state of Illinois upwards of $22 million in tax revenue each year. This isn’t just a handful of bloggers; it’s put some companies in the position of move or die.

Take FatWallet, for example. It was based in Illinois but it had contracts with internet retailers based all over the US. The new law would require all of FatWallet’s partners to collect sales tax because of where FatWallet was based. This led most of the retailers to cancel contracts. In order to simply not die, FatWallet had to move the entire company (and 54 employees) to Wisconsin.

This type of law is forcing companies to collect tax not based on where they are but based on where they might have a business partner. How is that reasonable?

image by J. Stephen Conn