Chicago Community Ventures Blog

Amazon cuts off Illinois partners as Sears cheers online tax law

(Crain's) — Amazon made good on threats to counter a new Illinois law that broadens sales taxes on online purchases, while Sears joined groups applauding the measure.

The law, which went into effect with Gov. Pat Quinn's signature Thursday, requires online merchants to collect sales tax on purchases made through business partners based in Illinois.

Seattle-based Amazon is cutting ties to those Illinois-based affiliates — about 9,000 websites that refer shoppers to Amazon's site and receive a commission on the purchases, the Wall Street Journal reported Friday.

Rebecca Madigan, of Camarillo, Calif.-based trade group Performance Marketing Assn., told the Journal the Illinois affiliates generated ad revenue of $611 million in 2009 and $18 million in tax revenue. Illinois will lose up to 30% of the tax revenue, she estimates, as the firms lose business, cut jobs or move out of state.

Chicago-based CouponCabin.com helps people find bargains with a wide array of businesses, including Amazon. Now when Illinois residents buy something from Amazon through CouponCabin, they'll have to pay sales tax.

CouponCabin is threatening to leave Illinois rather than risk losing its arrangement with Amazon.

"The only result of this law is that high-growth businesses like CouponCabin will be driven out of Illinois to maintain their relationships with out-of-state merchants," Scott Kluth, president of CouponCabin, said in a statement.

Sears Holdings Corp. is among the retailers and groups praising the new law.

 

In a statement, Sears — referring to the measure as the "E-fairness law" — praised it for helping "to correct a longstanding problem of out-of-state businesses not collecting and remitting the sales tax in Illinois, a practice that has put brick-and-mortar retailers at an unfair competitive disadvantage for far too long." The retailer said the law restores "long overdue fairness to the tax system for retailers and taxpayers in Illinois."

David Vite, president and CEO of Illinois Retail Merchants Assn., said the law will keep national online companies from taking advantage of a tax loophole that isn't available to their Illinois competitors.

"They are bullying small businesses," Mr. Vite said. "They don't want to collect the tax because they like that competitive disadvantage."

The amount of money at stake in Illinois is relatively small for now.

The Illinois Department of Revenue says Internet shopping would have generated $153 million for state government last year if it had been subject to the state's 6.25% sales tax. But the new law doesn't apply to all sales, just those made through Illinois affiliates. Officials say they don't know the size of that portion of Internet sales.

The new tax law requires the Revenue Department to remind Illinois residents that they are supposed to be paying taxes on all online purchases. Failure to do so will result in penalties and interest on outstanding taxes. Taxpayers get amnesty on purchases made between July 1, 2004, and Dec. 31, 2010.

The Illinois Chamber of Commerce has mixed feelings about the new law, lobbyist Todd Maisch said. While it makes competition more equitable, he said, it also could raise prices and hurt some Illinois companies.

"There are a lot of businesses whose business model is to work with companies like Amazon essentially as marketing partners," Mr. Maisch said. "They're the ones that will be impacted by the bill."

Meanwhile, Sears says it's ready to pick up the affiliates Amazon is cutting. "We recognize and value our relationships with our over 6,500 affiliate partners and the state and local communities we serve and we look forward to adding new affiliates," the company said in the statement.

(The Associated Press contributed to this report.) Article originally appears in Crain's Chiacgo

Small Business Can Cash In with Tax Cuts and Credits for Hiring

There are 2 tax acts currently in place that will allow employers to benefit from hiring new employees. The first is through the State of Illinois. We posted an article about it but its worth bringing up again.

 

Small businesses that create new jobs between July 1, 2010 and June 30, 2011 may be able to take advantage of a $2,500 tax credit for new hires. The Illinois Small Business Job Creation Tax Credit is a $2,500 tax credit is available to businesses with 50 or fewer employees (including all locations) as of June 30, 2010. New small businesses hiring their first Illinois employee(s) may also qualify for the credit. Those businesses that began hiring on July 1 may apply for the credit retroactively.

 

The Illinois Department of Commerce and Economic Opportunity created a
simple, easy-to-use online registration system for small business owners at
JobsTaxCredit.illinois.gov. Eligible companies should register new positions
online as soon as a new, full-time Illinois employee is hired and begins
providing services. After one year, companies can use the website to enter
substantiating data and apply for their tax credit certificate. Tax credit
certificates will be awarded beginning July 1, 2011. The total amount of
credits issued is capped at $50 million, which will support 20,000 jobs. – Press Release, Office of Governor Pat Quinn

 

The second is a tax cut and credit; its a federal program. The HIRE (Hiring Incentives to Restore Employment) tax exemption offers an IMMEDIATE benefit to employers that hire employees that have been out of work for 60 days or more are exempt from paying their share of social security payroll taxes, which is 6.2%. This exemption expires at the end of the year, so DO NOT DELAY.

 

In addition to exempting employers from these payroll taxes, the HIRE Act allows employers to claim a tax credit of up to $1,000 for each newly hired qualifying worker who is retained for one year. To read more about the HIRE ACT, visit the IRS here

 

With both tax breaks, on a salary of $40,000, that’s over $5,000 that could be saved. These efforts are with the hopes of stimulating hiring. What say you small business owners? Have you found these tax breaks and credits motivating enough to hire new staff?

 

 

Chicago microlender ShoreBank gets help from Wall Street

Big-time banks JP Morgan Chase, Citigroup, Bank of America and most recently, Goldman Sachs, are lining up to help Chicago's troubled ShoreBank.  The South Side bank, known for making loans to small businesses who can't get financing elsewhere, needs to raise $125 million to avoid a takeover by the FDIC.

Goldman has committed to investing $20 million in ShoreBank, making it one of the bank's largest investors.

The recent aid offered to ShoreBank is another example of Wall Street trying to help small business and consumers in the wake of the financial crisis. 

ShoreBank isn't just any old bank, it's a highly supported Chicago institution, recognized by high-profile politicians in Washington.  In fact, President Obama drew attention to the bank's micro-lending initiatives as a senator while traveling in Nairobi.  And President Obama's mother received small business advice from ShoreBank's co-founder and now president, Mary Houghton.

ShoreBank blamed its dire financial situation on how the recession affected the low- and medium-income communities it serves.

Read more about ShoreBank here.

Citigroup to loan $200 million to small businesses

Citigroup is parterning with non-profits to loan $200 million to small businesses, the bank said last Wednesday.  The huge bank is one of the many financial firms to team up with community development financial institutions, or CDFIs, to funnel money to cash-strapped small business owners.

Goldman Sachs and Morgan Stanley also recently announced plans to support small business lending.  In fact, Morgan Stanley recently provided a credit line to microlender, Accion Chicago.

Citi, which will handle the underwriting and risk management of the $200 million Communties at Work Fund, partnered with the Maryland-based Calvert Foundation and Opportunity Finance Network, a group of CDFIs, to launch the new fund.

"The need is more apparent than ever," said Bob Annibale, Citigroup's global director of microfinance and community development.

Indeed, "demand from small businesses in the United States has just gone through the roof," said Mark Pinsky, Opportunity Finance Network CEO.

Read more here.

Small businesses hired slightly more people in April

Small business employment increased by 1,000 in the month of April compared with March, according to the latest ADP Small Business Report.  Small businesses are defined as having less than 50 workers.

Medium- and large-sized businesses also saw a jump in their April employment numbers.

Service-oriented small companies are doing better than their goods-producing counterparts, according to ADP, a New Jersey-based payroll processing firm.

Small businesses in the service-providing sector hired 25,000 more people in April than in the month prior.  Goods-providing businesses, however, shed some 24,000 jobs, the national report said.