Internet company FatWallet hops the Illinois border to Beloit

2011-06-14T07:00:00Z 2012-05-23T17:32:30Z Internet company FatWallet hops the Illinois border to BeloitJANE BURNS | jburns@madison.com | 608-252-6440 madison.com

This story appeared first in the Sunday edition of the Wisconsin State Journal newspaper.

BELOIT — As the founder of a company that finds bargains for Internet shoppers, Tim Storm knows a thing or two about good deals.

So in March, when Illinois Gov. Pat Quinn signed a law aimed at trying to collect sales tax from Internet shoppers, Storm knew it would be a bad deal for his company.

That's why FatWallet.com no longer is an Illinois company. A little more than a month after the law was signed, FatWallet.com packed up and moved five miles from its headquarters in Rockton, Ill., to downtown Beloit.

"This isn't about us paying taxes or not paying taxes," Storm said. "It's about us having contracts with retailers or not. We can't just say, 'Oh, let's stay in Illinois and lose a quarter of a million dollars a month.'"

The company has 55 employees and last year was named one of the top small business workplaces in the U.S. by Entrepreneur magazine. The company was collateral damage when Illinois became the fourth state in the U.S. to pass an "affiliate nexus tax," dubbed by supporters the "Main Street Fairness Act." Arkansas became the fifth.

A 1992 Supreme Court decision says online retailers are not required by law to collect sales taxes in states where they do not have a physical presence, unless Congress moves to change that. Throughout the U.S., states are considering legislation to try to collect those taxes and major retailers such as Walmart, Target and Best Buy support it.

Makes money from commissions

FatWallet.com does not sell products, so sales tax is not an issue for the company proper. What FatWallet does is bring people to its site for coupons, ads and bargains that lead consumers to sites such as Amazon.com, Overstock.com or BarnesandNoble.com. It makes its money from commissions on those sales and from advertising.

That makes FatWallet — and any hobby blogger who might have an Amazon ad on his or her site to make a little money — an affiliate. Under the Illinois law, the presence of an affiliate, warehouse or distribution center equals the brick-and-mortar retail presence of a company, which is then required to charge sales tax.

Some online retailers didn't respond with a plan to charge their customers sales tax — they responded with letters threatening to drop companies such as FatWallet as affiliates.

Storm estimated his company would have lost 30 percent to 40 percent of its business without major retailers such as Amazon.

"We would have been at a competitive disadvantage if we would have stayed in Illinois," Storm said. "We would have lost a lot of contracts and lost our ability to share deals with some of the merchants. It was a no-brainer."

Kleefisch called Storm

Wisconsin Lt. Gov. Rebecca Kleefisch said she read about the situation after taking office in January. She made a cold call to Storm.

"It wouldn't have made them a profitable operation in Illinois," Kleefisch said of the law. "They needed to go somewhere they could be profitable."

Kleefisch said she called other affiliate businesses as well. A similar company, CouponCabin.com, said it is considering moving to Indiana but has made no announcement.

Storm didn't return Kleefisch's call at first, but the night before Quinn signed the bill, Storm got a call saying it was going to pass.

"I still had Rebecca's phone number and that next morning I gave her a call," Storm said.

He then met with Wisconsin Department of Commerce Secretary Paul Jadin and spoke with Gov. Scott Walker on the phone. Storm wanted assurances that Wisconsin was not considering similar legislation that would affect Internet affiliates. He was comfortable with what he heard.

"A week later, we signed the lease," Storm said.

Rockton mayor disappointed

It was an unexpected turn in the history of the company, which Storm founded in 1999. The Illinois native was working in research and development at MiTek in Monroe and paid $100 for a domain name for what began as a one-page list of online coupons.

Storm, 43, began working on the site full time in 2000, hired his first employee in 2001 and in fall 2002, opened the first office with eight employees in Roscoe, Ill. Three years later, the company moved to Machesney Park, Ill., and continued growth led the company to build its own headquarters in Rockton.

The company's offices were built on the site of the former Wagon Wheel Resort. FatWallet was there just three years.

"It took us 2½ years to plan the building and four weeks to move out," Storm said.

For Rockton, population 7,685, it was a loss of 55 jobs and it put the brakes on further development of the site.

"We fully expected that by having FatWallet there, it would bring in other companies and other development in that area," Rockton Mayor Dale Adams said.

Storm said the company's culture helped soften the blow of the move.

Working to keep employees happy

The new Beloit office is at the former site of Kerry Ingredients, which moved elsewhere in Beloit in 2009. The city-owned building, which sits above the Rock River, retains many of the laid-back elements of the Rockton office. A "No Miss" policy says no employee should ever miss an important personal or family event because of work, and vacation time is unrestricted.

"You still have performance responsibilities," said Ryan Washatka, the company's chief operating officer. "Everybody has a pretty flushed-out scorecard that you are accountable to deliver. That's what the emphasis is on, not on how many vacation days you used."

For the move, employees were allowed to decorate their own offices. The company paid for the paint and gave them $100 to spend.

"Families would come in together at night and paint, or they'd go to garage sales and look for things for their offices," Washatka said.

FatWallet signed a one-year lease at the Beloit site, with an option for a second year. The company still owns the Rockton site.

Illinois tax law in court

The Performance Marketing Association filed a lawsuit challenging the affiliate nexus tax in Illinois. U.S. Sen. Dick Durbin, D-Ill., plans to introduce a bill that would make it federal law to charge sales tax for online sales.

Storm said the company has been so focused on the move he hasn't made a decision about a future location or what would happen if the law in Illinois changes. He estimates the move cost his company $100,000.

"We're looking at what our best long-term solution is, whether that's here, Madison, Milwaukee, some other state," Storm said. "We're here. For a year, at least."

Adams understands why Storm had to move but is frustrated with how it affects his community.

"It's great for Beloit, it's great for Wisconsin," he said. "But shame on Illinois for creating the situation."

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