The state of Illinois recently had a state sales tax law struck down that could provide some exciting opportunities for entrepreneurs who are looking to form an LLC in Illinois.

In an effort to collect more sales tax revenue, the state of Illinois had created an “affiliate nexus sales tax law” that required many businesses that sold products via online affiliates to collect Illinois sales tax, whether or not those businesses had an actual physical presence in Illinois. On April 25, 2012, Illinois Circuit Judge Robert Lopez Cepero struck down the law, saying that it violated the Commerce Clause of the U.S. Constitution by interfering with interstate commerce.

According to the court’s ruling, simply selling products or services via in-state online affiliates is not enough to create a legally defined “nexus” that would require a company to pay state sales tax in Illinois.

Apparently, some businesses had been leaving Illinois or incorporating outside of Illinois because the affiliate nexus tax law was forcing them to collect Illinois sales tax just because they had a “nexus” of online affiliates selling in that state, thus creating a regulatory burden that many Illinois affiliate businesses didn’t want to put up with.

CorpNet has an online affiliate program, and I can personally say that it would be a big hassle for our small business if we had to collect state sales tax for every single purchase made through one of our online affiliates. Governments need to do what they can to raise revenue to pay for schools, roads, and other services, but they have to strike the right balance between raising revenue and avoiding discouraging companies from doing business in that state.

In this case, it seems that many Illinois affiliate businesses were missing out on opportunities and even incorporating outside of Illinois because the companies whose products and services they sold didn’t want to be burdened with the details of collecting Illinois sales tax.

Now that Illinois’ affiliate tax law has been struck down, now might be a good time to form an LLC in Illinois.

Do you want to incorporate in Illinois? CorpNet can help! Even though we’re based in California,  we can help you incorporate in IL or in any other state.