thank you your honor is brian bear of assistant attorney general on behalf of brian hamburg director of the illinois department of revenue this case concerns the constitutionality of public act ninety six fifteen forty four which amended the use tax act to that is earth the preemption rate of the internet tax freedom and yes correct and i mean would we even have to reach the constitutional question do you suppose now we're in a well because it is or indeed the very a bill in the in congress now with respect to this very issue that there's a bill in congress the effect of that bill i'm not sure might be part of this case i can't say for sure if not all of those things because of the lab because of the limits on the type of businesses that the sales limits on the businesses so that's going to have to be a question i think that will wait for another day but at this point the my position the way i view this case is you have to constitutional issue of the commerce clause constitutional issue and you have a supremacy clause issue i'm happy to address the supremacy clause issue first standard for addressing facial challenge and i was going follow up with the the preemption discrimination question at the end of the commerce clause test for that a for what for what a state can impose sales and use taxes on sellers is not that difficult you just have to have a substantial nexus with the tax and state the substantial next a standard requires a physical presence in the tax of state but the physical presence statutes not a particularly difficult standard to meet it doesn't require the remote seller for example have a physical property in the state it doesn't require the impair or even be employees going to the state the physical presence test can be met among other ways with a room a remote out of taxes state is when you have in state representative sell it soliciting sales on your behalf this is been a recognized principle of constitutional law for the least the past century it's not a radical or novel concept and under public act ninety six fifty forty four this is the nexus principle that applies in state representative to soliciting sales it's happening in state representative soliciting sales might be half of the remote seller it's a question is customers who have been referred by the retail retailer so shouldn't is that the word we should be looking at what is the meaning of that word referral i think yes i agree you're out of that's one of the you know one of the core questions in this case because the statute first looks to if you have a contract with a person in the state i think that meets the in state representative standard i don't think that's really in in dispute so the question is what does it what does the legislate what did the legislature intend by basing the compact selection obligation on a referral based commission contract and i think what they i think it's clear that this anticipates something maximize their income by soliciting tail said sales from rather remote retailer from the customer and this is it this is done through this interactive web link and this is not this is more than just again electronic billboards you have t to figure out if the language is referral is this a referral or not what is happening here in terms of the relationship between the person and who has the website and the retailer and customers it says you buy from amazon you buy food through the overstock we will have a coupon we'll give you a coupon we'll give you a discount we'll even give you cash back affectively what they're saying one of those coupons come the contracts that that was established is fat wallets offering the discounts that wallet is telling people you sign up for a fat wallet account we receive a commission for every sale we make to amazon we will share our commission with you know illustrates the problem with the fit with bringing a facial challenge to this action there are a number of there could be any cloth or a myriad of ways in which businesses can organize there's a myriad of ways in which contracts could be entered into between in our state y you they have the into they have the relationship with the retailer to make the referrals they want this they want these companies to refer them to reach for the sales the sale itself gets made through the these are not retailers and again that's i think i misspoke of that in my opening brief the in state people are not retailers themselves they're almost they're like brokers or sales agents or represent sales representatives they're not the one it's kind of like in the script ok there they're called these are called and that's another they're called they enter into or often the contracts they enter into are called the philly agreements now that's a little confusing i know because they are not corporate affiliates of the out of state sellers so this is what this i a type of nexus which is north attribution nexus there's another form of a nexus known as affiliate nexus which refers to the nexus between say barnes and noble dot com and barnes and noble but this is not that this is if this is attributing the nexus to an determine what is the next and what the what they do is i think you can well one of the stipulated facts i don't can't put my finger on a stipulation reference there's a newspaper article as in wisconsin which explained some of what and some of what is done and it says here it says that was just not sell products that well it does bring people to its site for coupons as in bargains that lead consumers to sites such as amazon dot com ennobles dot com it makes money from commission on those sales and from advertising so this is this is part of the stipulated fact in addition we did include in the motion for summary judgment a copy of the then have the opportunity to get all the discounts that was provides you have the opportunity to do get it created cashback program where it when you buy from customers they will deposit part of the commission that they earn  the a couple or wholesale it's i guess my answer that isn't a yes or no if you say you can always sell for part all your used back you can keep your receipts i mean if you buy from a out of state retailer that has no presence in illinois you can keep your receipt you can self report on your illinois income tax and you don't have to fill out that line that's live is there just that sort of a prison assumption for people because most people don't self report so that kind of tries to capture that now if you're self reporting all of your out of state purchases for use tax use tax on then you don't need to use that line this will make help make it i suppose less necessary because for some people who use these particular at e d s they would be perfect because they will be the clues tax collection will you will be collected from that simply said so but it listed a number of criteria of type of taxes and the ten the issue in this particular case is this does this tax discriminate against electronic commerce and it does it does not for a number a couple of reasons  first the used tax act already taxes to the constitutional limit so this will squarely within a tradition of representation on nexis it fall squarely within script of tyler pipe cases like that test for establishing the physical presence is that actually different from would apply to and yes this case doesn't has it has nothing to do with well or ballots has and we're not we're not attacking quiller bella's has we're not trying to undermine those decisions in quebec there was no in state representative it just did not involve that particular fact pattern it was an out of state party the court said if all you're communicating through is u s mail and common carrier that's not enough there were no there were no sales in state sales tax in say sales representatives there were no corporate affiliates in the state so that's just a that's a whole different line of cases that will exist continue to exist and continue to with that again would be an open question your honor what i mean this is the way this stature is worded which requires referral contracts anticipates that the in state person is going to be engaging in solicitation if you just had a website if you just had a web link with no contract on it it probably wouldn't fall within the terms of the statute for one thing so we meet we wouldn't be here on a constant sort of a constitutional question whether that would meet the quill standard or not meet the call standard i think is an open question because you still have unlike while you still have the in state representative the question of whether they're doing enough to get past will i think would be a is a this is a decision for another now is it possible it can be hyper i pod a size a contract that doesn't sure but the fact but this but what the legislature here is making a good faith effort to sweep to sweep up language that it's the contract with the interstate or the in state web representative who refers to sales through the web link with the out of state retailer those of the contract itself or is it the commission is the referring on a commission basis which is going to buy i got that part of it again just trying to understand physically what the factual conduct is if you're laid off factory worker from galesburg used to work mak dishwashers are sure washing machines that mean if they sit in galesburg and run some activity try and create some businesses are that it's the it's the web it's the web link through the  referral contract the receipt of commissions as the act the connection through the web link between ab state retailer and the in state representative let me have a few minutes left so let me address again a couple of points about the the preemption arguments the under pressure argument play this making a couple of i think a couple of arguments wonder claiming this doesn't discriminate because it imposes a tax question obligation on internet advertising that doesn't impose on other forms of media that's not correct i think illinois statutes already impose use tax question on another form of media the particular statute and ninety six fifteen forty four itself and a number of different media type connections that could which could impose state taxation they're also arguing i think they're also i think trying to make an argument that  because this this particular arrangement is so unique that it's there is no comparative war and therefore it must discriminate but i think the point i mean i think that's an over reading of the statute the statute as opposed to create an exemption for internet taxation it's supposed to argument and justice thomas asked the question whether if we address the preemption issue is it then not necessary even to reach the question of the commerce clause question relating to the substance of the statute itself and the the answer to that question is moratorium where it has limited state action in regard to certain transactions conducted over the internet the justice thomas pointed out that congress is currently considering legislation that would address this issue this legislation that was sponsored by senator durbin from illinois the marketplace then a sat which has passed the senate is now before the house of representatives and that bill is a is a is intended to balance the burdens on interstate commerce by requiring certain simplifications in regard to the administration of state sales and use taxes with the opportunities of states to expand the scope of their jurisdiction to require collection by remote sellers and we would suggest that that is a much more intelligent way to address this issue that it is by disparate state legislation which individual states attempt to expand the scope of  reach through legislation that is not consistent that does not provide for any simplification measures so this court does have the option before to address these undersea clause preemption issue and not reach the substantive commerce clause issue it would have had that option i think is my brother correctly indicated both a constitutional questions once a supremacy clause question one is a commerce clause question so i don't think the court was incorrect once it decided it has reach the constitutional issue to address both constitutional but would not have had to correct as the court did not reach count two which is another commerce clause issue having to do with reach beyond its territorial jurisdiction so i don't need to reach that having address criteria that are necessary in order to subject an out of state retailer to tax collection responsibilities yes to enter into a contract with a illinois person that contract test of provide for referrals through a web link it needs to provide for commission payments on any resulting sales and they need to be ten thousand dollars minimum of sales that we results from that so the operative question is is this referral relationship with you that is being passive or or affirmative sufficient united states supreme court in the bell assessed decision said that the furthest reach that a state is permitted to attach a substantial nexus under its decided cases was the script of the decision in the script a decision was a circumstance in which an out of state retailer had ten manufacturers representatives appropriate question is does a referral relationship rise to that level i think that's the substance question no court state or federal court in the united states has found that that kind of limited activity is sufficient to create a nexus this would be the first court to find that such activity is sufficient and my brother in his opening statement made brief reference to the new york overstock amazon decision in which the court said that the most that resume relationship does is creates a presumption and that's what the statute in new york provides simply provides that if you have this relationship these referral relationships that that creates a rebuttal presumption and then you have to partner taxation and finance explained that it's relatively easy to overcome that presumption of provision in your contract with the in state with affiliate stating that they may not engage in any solicitation activity and you need to get an annual certification from them that they are not engaged in any solicitation activity and once that is done you have reverted the presumption for the department to argue that there's no difference between the new york case which simply creates a rule of evidence switching the burden of going forward not even the burden of proof as being exactly the same analysis as is present when you have a conclusive rule created by the general assembly in illinois i think is simply illogical there  regard to the commerce clause question is to be looking at the four criteria and i explained to them it's having a contract it's having a referral it's having a commission and it's having ten thousand dollars of sales the fact that the they'd be some companies these web affiliates a web publishes who do additional activities that are beyond the scope of the statute beyond the criteria is really irrelevant to this court's consideration for example you could have a web affiliate who also runs a consignment store on behalf of the out of state retailer there's no question that the operation of a consignment store which is a remote seller owns inventory in which sales are being made on behalf of the rome seller would be sufficient to create a nexus and it may also be that there was a web link that that individual had this statute is not concerned with that commerce clause issue this card this statute is not concerned with these questions of what is the coupon relationship that fat wallet which by the way is not even in the illinois company relocated outside of the state this statute isn't concerned with this this statute is concerned with these narrow activities and the question of whether those activities whether additional supplemental activities are sufficient to constitute a constitutional nexus is the question before us web site and when you go onto a web site the website does not disclose its location you don't know whether that's an illinois website or or florida website you don't know where the service are located the the internet is disrespectful of these kinds of borders but all of us have the experience you go on a website and you see an advertisement and you click on that advertisement and it takes you to another website where you then can make a purchase sample exactly is that what this is that's exactly what's happening here yes the climate coupons emotional cause and sharing and commissions and wars benefits for the consumer we are not we are companies engage in additional activities beyond the statutory criteria they may be offering their own coupons and sharing discounts they may have relationships with out of state retailers that involve other kinds of resale and post  business might in fact be sufficient enough to create nexus i want to be clear your honor the referral is limited to the click and the link that's what the referral is the additional activity that mr bower of is referring to is saying that there are some of these companies who in addition to referral engage in other kinds of activities these other kinds of activities are beyond the statute consequently in looking at the facial challenge issue before you i suggest that all that you do is look at those four criteria and determine whether those folks criteria when held up against the co will bail the format in which it's possible if there's a finding of dangerousness to public safety where bail does not need to be provided and it was challenged on due process and eighth amendment grounds and the issue that was was the question of whether that's a clear violation of the constitution or whether there are circumstances in which a magistrate may find that there is such a danger to public safety that extending bail to to the defendant would endanger public safety and and therefore not not doesn't violate the amendment the standard in the cilento case was clear and the and the court was simply saying there may be facts in which it would be properly imposed in this case the standard is clear these four criteria that i mentioned to you and the only question is when you hold those criteria up against the bellas hess will physical presence substantial nexus stand it do they need it or do they not need it if they do need it if that does constitute a physical presence which i  asking is is that activity along this referral activity along with no further solicitation activity because no further solicitation is required by the statute i believe the justices question was does that satisf bell assessed will stand we submit to you that it does not satisfy that sense that's that's the judgment this court needs to make it does not need to look at these additional supplemental activities that go beyond the criteria congress clearly intended to do during this moratorium that it is a moratorium on an absolute prohibition expires in two thousand and fourteen was to state that you can't treat transactions over the internet in a matter that is different in any manner from similar transactions that are not conducted via the internet the stipulations in this case provide that there are performance marketing arrangements that are conducted through magazines through newspapers through radio advertising where there is a similar tracing of a transaction through the use of hodes that may be present in a newspaper ad or you know radio television commercials saying just tell them that on any send to you when you place the order so you can track the origin and where a similar commission is paid as a result of those non internet referrals this is the stipulation that it's clear in these latter performance marketing arrangements newspapers magazines radio television that does not fall within the scope of the act under your consideration it does not result in the remote seller being subject to a test election obligation it is only if that transaction is effected over the internet if the referral that we are discussing is a referral via the via the internet and not a referral through these other media that results in this tax collection obligation based upon the notion that companies now falls within the definition of maintaining a place of business in illinois this state of course disagrees with your fundamental premise here that this is all advertising whether it's an ad in the newspaper it's an ad on the internet that you see and says all the  say no what we're talking about here is fundamentally different whatever this referral clickthrough business is out is fundamentally different from the newspaper and then they say can you give us any other examples that we could measure against that functions in this way i don't think you are they are saying that it's fundamentally different than performance marketing that's conducted by publications or is the i t f a issue and i do not believe that they are disputing the fact that there is in fact it's in the stipulation so i don't have to assume what they're believing it's in the stipulations that they acknowledge that mis marketing has been around for a long time and it's conducted in newspapers magazines radio and television and it's done so as as all of us have experienced we are there's a code number where where when you place your order and you want to get the discount you indicate that he has my code number that i got from the newspaper you know i got from from the radio so that you have two kinds chew media in w performance marketing is conducted new media the internet which this statute addresses and old media which is statute does not address and congress made clear in the internet tax freedom act that you can't discriminate between this new media and this old media at least until two thousand and fourteen when the court has an opportunity i say when congress has an opportunity to decide whether they want to further legislate in this field if you have a radio code that is a form of performance marketing and it's been stipulated that it's a form of performance marketing and it does not create a nexus for an out of state retailer but you have the exact same notion of performance marketing by tracking the sale and paying a commission over the internet and to say that's not a form of discrimination i think i think defies both the stipulations and the logic that underlies the internet tax freedom act if that isn't what the t s a is about then i don't understand what it is about and congress said states you cannot engage in that discrimination for the time being you you may be free to do so later but but but not at this juncture this is one of the points i want to just make make clear to the court that the performance marketing association  association that represents the illinois whether philebus we're not an organization representing the retailers we don't really have a dog in the fight as to whether retailers should or should not collect tax this federal legislation that would require such tax collection that's perfectly fine with the performance marketing association in fact i would prefer to see a national uniform simplified basis for such tax collection instead the web affiliates are the innocent victims of this law because what has happened on this law is literally thousands of illinois small organizations that maintain websites that have these kinds of referrals have been terminated by the out of state retailers so that the out of state retailers are not quarter within this within this catch that that has been created and it's no difficulty for them to say instead of having these web referral relationships with an illinois website owner will have these web affiliation relationships with an indiana website on or a florida website owner because when the consumer makes the visit to the website they have no idea where that website is located it's total anonymity in terms of territor regard to that transaction so there's no indication that this legislation has been successful in raising additional revenue but it is stipulated in that it has resulted in the terminations illinois w for tangible personal property by means of telecommunication or television shopping system which uses toll free numbers which is intended by the retailer to be broadcast by cable television or other means of broadcasting to consumers located in the state state soliciting or for tension personal property damage of advertising which is to send to somebody primarily to consumers located in the state soliciting orders for terrible personal property by mail if the so itations are substantial pursuant pursuant to a contract with a cable television operator located in the state soliciting orders for tentacle personal property by means of advertising which is transmitter distribute over cable television so there's a host of means traditional i'd like try to cannot electronic in which a form of solicitation or an out of state retard in our state seller can establish nexus in the state this is a one particular means of electronic commerce it isn't it doesn't discriminate against other forms of electronic commerce it doesn't discriminate against other forms of commerce it's based on and again it's not yet you have to also keep in mind it's not based on the referral it's also based on the commission itself as the commission is the fact that the website operator is going to act on a commission basis which intice a page that there are to be doing more than simply advertising they're going to be actively trying to solicit sales of the referral itself it has it's done it's done on a commission rantis of painting it this is again a facial challenge counsel wants to suggest that well there might be some people that this would apply unconstitutionally to that turns the facial analysis on its head we we can we don't don't not only do we have to hide can we hypothesize that there are websites and it's not just unsuited to street distinguishing this case from script oh there's we know there's hundreds if not thousands of web site affiliates that scholastic book club case which is the supreme court of king to that connecticut involving a case of ns and in state representative in the said they're bringing plaintiffs products to the attention of students or buyers and presenting them with the means to order pay for and receive delivery of those products that's all this statute is a comp company that's all that these in state website operators are doing there they're providing a means for which people can purchase from these out of state retailers and they're in effectively creating an in state sales force for these out of state retailers and that's enough to create nexus under the commerce clause what has no other questions that we would ask that the sort of course