IL’s ‘Amazon-tax law’ Unconstitutional – 9K Jobs Lost for Nothing

An Illinois law aimed at leveling competition between online and offline retailers while collecting more state sales taxes owed from Internet purchases is unconstitutional a Cook County judge said Wednesday. …

In March 2011, Illinois passed the Main Street Fairness Act, informally dubbed the Amazon-tax law.Before the law, online retailers were forced to collect and remit sales taxes on purchases made by Illinois residents only if the online retailer had a “physical presence” in the state. For example, Sears must collect sales tax on virtual checkout at Sears.com because it has a headquarters and retail stores in Illinois. But Amazon.com does not have a physical presence and did not have to collect tax on checkout.

But the new law expanded the meaning of physical presence beyond a warehouse, factory or office to include affiliate companies, typically deal and coupon website operators that earn commissions for directing shopping traffic to an online store. Affiliates are essentially third-party advertisers for online stores.

To avoid having to collect sales tax upon virtual checkout, some large Internet retailers including Amazon.com, responded by cutting ties with affiliates in Illinois. That eliminated revenue streams for affiliate marketers. There were an estimated 9,000 affiliate marketers in Illinois, according to the Performance Marketing Association, a trade group that was the plaintiff in the case.

After the new law passed, some prominent Illinois-based Internet businesses, such as CouponCabin.com and FatWallet.com, fled to nearby Indiana and Wisconsin rather than be cut off from commissions from Amazon.com,Overstock.comand others.

Cook County Circuit Court Judge Robert Lopez Cepero said in court Wednesday that the Illinois law violated the commerce clause of the U.S. Constitution, which limits who a state can tax, and that the law conflicted with the federal Internet Tax Freedom Act, which prohibits some types of Internet-related taxes. He directed parties to draft an order reflecting his opinion.  …

“We are relieved that the 9,000 affiliates that were based in Illinoismay now have the opportunity to operate in Illinois without jeopardizing their business relationships with online retailers. This ruling places the responsibility for a solution back where it belongs: in Congress. CouponCabin continues to strongly support a federal solution to the taxation of all online transactions.”via Chicago Tribune.

Unbelievable!

I got news for the mopes that voted for this thing — THESE JOBS AIN’T COMING BACK!!

Worse, the companies that left took the talent base with them.  So now there’s some talent in Indiana or Wisconsin which will attract other tech businesses.  Companies locate to where there is talent.  The “if you built it they will come” only works in movies.

Chicago was establishing itself as an affiliate marketing empire, sort-of a Midwest silicon valley of online marketing.  But 9,000 high paying tech jobs left.

What we need is a law that says anytime a legislature votes for some law later found to be unconstitutional that they get docked what it cost the taxpayers to defend in court and the estimated loss to the state treasury.

lllinois Moves Toward Insolvency

We’re now making national news:

After trying to tax Illinois to governmental solvency and economic dynamism, Pat Quinn, a Democrat who has been governor since 2009, now says “our rendezvous with reality has arrived.”  …

Illinois was more heavily taxed than the five contiguous states (Indiana, Kentucky, Missouri, Iowa, Wisconsin) even before January 2011, when Quinn got a lame duck Legislature (its successor has fewer Democrats) to raise corporate taxes 30 percent (from 7.3 percent to 9.5 percent), giving Illinois one of the highest state corporate taxes, and the fourth highest combination of national and local corporate taxation in the industrialized world. Since 2009, Quinn has spent more than $500 million in corporate welfare to bribe companies not to flee the tax environment he has created.

Quinn raised personal income taxes 67 percent (from 3 percent to 5 percent), adding about $1,040 to the tax burden of a family of four earning $60,000. Illinois’ unemployment rate increased faster than any other state’s in 2011. Its pension system is the nation’s most underfunded, and the state has floated bond issues to finance pension contributions. Quinn’s recent flirtation with realism — a plan to raise the retirement age to 67 and cap pension cost-of-living adjustments — is less significant than the continuing unrealistic expectation that some Illinois’ pension investments will grow 8.5 percent annually. Although the state Constitution mandates balancing the budget, this is almost meaningless while the state sells bonds to pay for operating expenses (in just 10 years the state’s bonded debt has increased from $9.4 billion to $30 billion), underfunds pensions and other liabilities, and makes vendors wait (they are owed $5.6 billion).

Peterson, a professor of government at Harvard, and Nadler, a doctoral candidate also at Harvard, say collective bargaining rights for government employees pose “a dramatically new challenge to the viability” of American federalism. They cite studies demonstrating that investors’ perceptions of risk of default are correlated with the rate of unionization among government employees. Higher percentages of government employees who are unionized, and larger Democratic shares of state legislative seats, correlate with increases in state borrowing costs.At least 12 percent of Americans change their residences each year, often moving to more hospitable economic environments. In a system of competitive federalism, Peterson and Nadler write, “If states and localities attempt in a serious way to tax the rich and give to the poor, the rich will depart while the poor will be attracted.” And government revenues and expenditures vary inversely.

via Boston Herald.

Illinois may fail before California.  Businesses are fleeing.  Residents are fleeing.  Illinois is shrinking, dying.

For all of the Democrats efforts to “help” the poor, how will the poor be helped when Illinois becomes nothing more than one big Detroit?  The rich will all leave — they have the means to do so.  Those left I guess will feed on each other.

I need to make sure history get written correctly.  The suffering of the poor that is coming is blood on the hands of Richie Daley, Michael Madigan, Lisa Madigan, Rod Blagojevich, George Ryan, Pat Quinn, Rahm Emanual, Jesse White, Danny Davis, Jesse Jackson, Todd Stroger, John Daley, and the rest of the Illinois combine… the Machine.

Illinois Teachers’ Pension Troubles

It’s important to note that this fund do NOT include CPS teachers.

Illinois public school teachers and retirees could have reason to worry about the kinds of pension checks they will be getting down the line.  …

The Springfield State-Journal register reported over the weekend that pension director Dick Ingram sent a memo to his board on Feb. 9, saying he was no longer confident that the state’s largest pension system will continue to pay it enough money to stay above water. The state owes Ingram’s fund $43 billion.  …

Ingram said pension funding is under severe threat from the state’s unpaid bills, soaring Medicaid costs and the $85 billion in overall unfunded pension liability, which is expected to rise.

“If that is the case, the only other option available that would significantly change the amount owed is to reduce past service costs for active members and retirees,” Ingram wrote in the memo.  …

Gov. Pat Quinn addressed the pension crisis shortly after releasing his budget plan in February.  …

“Everybody is going to get a haircut. No one will get scalped – that’s the basic concept,” the governor added.

via CBS Chicago.

Decades of the Machine running both Chicago and the state have led to every government entity in the state not being able to meet it’s obligations.

This is a wake-up call to not only teachers, but police officers, firefighters, and government workers of every sort.  The good ‘ole days are over.  The gravy train is ending.

Time to get real.

Chicago Business Round-Up

Cruising the local business section I found the following:

Caterpillar Opening Facility in Mexico
Peoria-based Caterpillar said Friday it is building a parts distribution center in Mexico that will employ up to 150 people.  …

The 500,000-square-foot facility will be in San Luis Potosi, and it’s expected to be operational in mid-2013. The new plant will be under the company’s logistics unit, which has also opened distribution centers in California, Ohio, Washington, Texas and Dubai

via Chicago Tribune.

Strike One!

Business in the Midwest Slips
Business activity in the Midwest decreased slightly in March due to a decline in new orders and employment, according to a monthly survey of members of the Institute for Supply Management-Chicago.

The Chicago Business Barometer fell to 62.2 in March from 64 in February. A reading above 50 indicates expansion in the regional economy.  …

Businesses said they are being affected by high oil prices, which are increasing transportation costs and raising the price of commodities

via Chicago Tribune.

Strike Two!

R.R. Donnelley Closing Mendota Plant
R.R. Donnelley & Sons Co.will close its Mendota printing plant at the end of May in a move that will affect 207 employees.

The pending closure will be devastating for the city, Mayor David Boelk said Thursday. Boelk said the company’s announcement caught him off guard, adding that he learned about the closing on Wednesday when an employee called him in tears.  …

R.R. Donnelley is one of the largest employers in the city of 7,340 residents. As such, the closing will affect other businesses, including the local post office, which Boelk said was spared in the latest round of Postal Service closings because of the volume of mail generated by the plant. Boelk said he hopes to find a buyer for the plant that could rehire the workers.  …

R.R. Donnelley has sought to adapt itself to an increasingly digital world in the last eight years. As part of that reorganization, it laid off 2,899 workers in 2011.

via Chicago Tribune.

Strike Three!!

Athens: Our Future?

BBC News has a few shots of Athens.  On one of the photos there’s an interesting quote by on of the protesters.

“Even if they eat the flesh of the people, bankruptcy will not stop.  It will just get worse.  That is why we support a write off of the whole debt and to be free of the European Union.”

This is an interesting sentiment.  Perhaps the protester is upset that he (or she) is young and did little by way of voting to create the debt problem in the first place.  And yet they refuse to blame their parents and the voters of the previous generation who first caused and then continued down a path to bankruptcy.

It is either that or the protester simply doesn’t believe in taking any personal responsibility for decisions made; that debt is just something that one can just walk away from at any time.  That running up a huge debt that you cannot afford to pay and walking away is  just something that is completely acceptable.

Neither rational is good.

Our day is coming.  How will our youth react to the misdeeds of their parents?  Will they assign blame where it belongs or will they instead believe that just simply walking away is the best option?

Who’s Pro Business?

Recently published is a series of stories on where it’s easier/better to start and run a business.  Whether we like it or not, businesses employ people; people do not employ businesses.  Creating and maintaining a pro-business environment is not easy.  But sure Illinois generally, and Chicago specifically, are failing… or are they?

First, a national story out of Inc. magazine telling us that  it’s easier to start a business in Rwanda than in the U.S. | Inc.com.  Well that can’t be good.  Perhaps this is why Hillary Clinton recently toured a GM plant in Uzbekistan.  Yep, creating 6,600 jobs and giving away $160k in entrepreneurial awards in Uzbekistan is a sure sign that maybe the U.S. has it’s job creation priorities a little out of whack.  You hard earned tax dollars at work.
Then we have Crain’s Chicago Business which confidently pronounced that Illinois’ business climate outshines its neighbors.  The three main reasons are low effective tax rates, easy access to capital, and a more educated population.  After telling us how wonderful Illinois is — and after most people have stopped reading — we find out the bad news:

The costs to operate a business in Chicago are:

  • 25% higher than in Des Moines,
  • 20% higher than in Indianapolis, and
  • 15% higher than in St. Louis.

Then we get this:

Catalyst Exhibits Inc., a trade-show exhibit management company, moved last week to Pleasant Prairie, Wis., from Crystal Lake to save money. The company, which employs 92, had been considering Elgin but chose Wisconsin, which provided a $1.2-million low-interest loan and a $500,000 grant.

“It wasn’t completely incentives,” says CEO Tim Roberts, who estimates he’ll save 20% a month on building costs, not to mention savings on health insurance and workers compensation premiums.

Oh, cheaper to manufacture in Wisconsin, I see.  I wonder why?

Illinois has the third-highest workers compensation rates in the nation, at $3.05 per $100 in payroll, though recent reforms are expected to lower those costs by about 9%. Indiana has the lowest in the nation, at $1.16. For a manufacturer, it could mean an extra $900 per employee annually. Wisconsin is in the middle, at $2.21 per $100 of payroll.

Illinois also is more unionized than neighboring states, with 16.4% of its workforce organized, compared with 15.1% in Wisconsin, 13.8% in Iowa, 12.2% in Indiana and 11.1% in Missouri, according to the Bureau of Labor Statistics. Unionized employees tend to have higher wages and more rigid work rules, driving up labor costs, which are the largest expense for most companies.

The rest of the article is where things get really bad.

Business owners worry they’ll have to pay the price for decades of fiscal mismanagement by Illinois’ elected officials. A yawning state budget deficit led to this year’s income tax hike. Even more ominous is the $93.5- billion funding shortfall in state employee pension plans. Illinois’ pensions are only 51% funded, the worst in the nation. Wisconsin’s plans are fully funded, Missouri’s and Iowa’s are about 80% funded, and Indiana’s is at 67%.

Ya, that’s a problem.  But we’re going to fix that right?

Indiana Gov. Mitch Daniels and Wisconsin Gov. Scott Walker have moved to rein in pension costs, pushing unions out of government work. Illinois Gov. Pat Quinn, who depended on unions for political support, has been unwilling to go as far.

Oh, Illinois is just going to keep piling on the debt.  So how do we get out of this hole we’re digging?

Illinois “won’t have any choice but to raise taxes again, and they don’t seem to be willing to cut,” says Mr. Roberts, a Barrington village trustee. “As far as the next 10 years, the odds in Wisconsin are much better for us.”

But at least our elected officials and the government bureaucrats are working hard to keep businesses in Illinois right?

Neighboring states also are developing a reputation for being more business-friendly. “When I call the secretary of state or whatever agency in Indiana, I get a positive response,” says Mark Winzenread, chief financial officer of Indianapolis-based Walker Information Inc., which previously had an Illinois office. “I don’t get that in Illinois. It’s generally a frustrating experience.”

When the 180-person consulting firm moved its headquarters just a short distance a few years ago, the state provided $600,000 to extend a road two miles. “We had one or two meetings and got it done,” he says.

Mr. Farrell, the former ITW CEO, says Illinois will have to fix its attitude and its finances or risk losing business to other states.

“I love Chicago, I really do,” he says. “Do you think I can look another CEO in the eye and say this is a great place to bring a plant? No. Most of the large companies in the state are very nervous about where we are.”

Oh, ok.  So there you have it. Illinois is broke.  Has access to capital and lots of smart people.  But it’s a financial mess, heading off the cliff, and the politicians and bureaucrats are clueless of how to help business because they’re all beholden to union interests.

Of course, in May 500 CEOs considered a wide range of criteria and ranked Illinois 48 out of 50 of states for business.  That’s right, Illinois in only behind New York and California.  Well we have to see how our neighbors rank in order to see if the Crain’s story is even close.

  • Indiana  – 6th
  • Iowa  – 22nd
  • Wisconsin  – 24th, and
  • Illinois  – 48th.

Hummm.  It appears safe to say that the position taken by Crain’s is at odds with the position taken by 500 business CEOs.  Kinda makes me wonder who came up with the Crain’s position and if it was their own idea or if it was provided to them.

I believe that Illinois has all of the elements needed to be an awesome state for business.  We do have not only manufacturing talent but technical know-how and access to capital as claimed.  What we need to do is balance our budget, reduce our spending, have pension reform, and elect people who really want to help businesses in the state.  It can be done.  We just need different leadership.