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Effective July 1, 2010, all persons entering into a contract or subcontract with an Illinois State Agency, and all affiliates of the person, must collect and remit Illinois use tax on all sales into the state of tangible personal property. This requirement applies even if the person or affiliate does not meet the definition of “retailer maintaining a place of business within the state”. Prior to July 1, 2010, this rule only applied to contracts, not subcontracts. (S.B. 51 and S.B. 1732, Laws 2009, effective as noted above).


A lawsuit filed by the City of Chicago seeking to require an online auction listing service used by third parties to buy and sell event tickets to collect the City’s 8% amusement tax was dismissed. The lawsuit aimed to enforce the 2006 amendment to the City Amusement Tax Ordinance requiring “reseller’s agents”, which includes anyone reselling or assisting in reselling a ticket on behalf of the ticket’s owner, whether in person, online, or otherwise, to collect and remit the amusement tax from the purchaser on the full selling price of the ticket.

However, a 2005 amendment to the Illinois Ticket Sale and Resale Act relieved internet websites who sell tickets at prices above face value from the requirement to collect the amusement tax. This tension has been resolved by the U.S. District Court, which decided that because the Preemption Act prohibits the City from using its home rule authority to tax the sale or purchase of tangible personal property, and because the City is not otherwise statutorily authorized to impose taxing obligations on Internet auction listing services, the City lacks the authority to obligate the online venue to collect and remit the amusement tax. (City of Chicago v. StubHub, Inc., U.S. District Court, Northern District of Illinois, No. 08-C-3284, March 30, 2009)


Chicago is seeking to collect unpaid amusement taxes on tickets being sold by online ticket brokers. The city passed an ordinance in 2006 requiring every reseller’s agent, including online ticket auctioneers, to remit amusement tax for tickets sold online for Chicago events. The city has sued two online ticket brokers, arguing that the companies were liable for Chicago amusement tax because of their facilitation of the resale of tickets for events taking place within the city. The city is requesting that the Illinois Circuit Court find the two companies (eBay & StubHub!)liable for amusement taxes they were required to collect and remit, plus interest and penalties. (City of Chicago v. eBay, Inc., Illinois Circuit Court, Cook County, No. 2008-L-050524, filed May 19, 2008)


In response to a taxpayer’s inquiry, the Illinois Department of Revenue released a General Information Letter (“GIL”) examining when a business would be considered “a retailer maintaining a place of business in Illinois” and therefore subject to use tax registrations and collection liabilities. Although determinations regarding nexus are very fact specific and cannot be addressed in the context of a GIL, the Department did provide useful guidelines in determining whether a taxpayer would have nexus and therefore subject to use tax obligations. The U.S. Supreme Court in Quill Corp v. North Dakota, 112 S.CT. 1904 (1992), set forth the two-prong nexus test, which is the current guideline for determining what nexus requirements must be met before a person is properly subject to a state’s tax laws. The first prong is whether the Due Process Clause is satisfied. Due process will be satisfied if the person or entity purposely avails themselves or itself of the benefits of an economic market in a forum state. The second prong requires the person or entity to have a physical presence in the forum state to satisfy the Commerce Clause. A physical presence is not limited to an office or other physical building. Under Illinois law, it also includes the presence of any agent or representative of the seller. Any type of physical presence in Illinois, including a vendor’s delivery and installation of their product on a repetitive basis, will prompt use tax collection responsibilities. Additional rules and regulations apply. (General Information Letter ST 07-0033-GIL, Illinois Department of Revenue)


Recent settlement of more than $2.4 million was reached as a result of lawsuits filed against major Illinois retailers due to their failure to collect tax on internet sales. These companies, Wal-Mart Stores Inc. and its affiliate Inc., Target Corporation and its affiliate Target.Direct, LLC, and Office Depot, Inc. and its affiliate Viking Office Products, Inc., claim not to have collected tax on internet sales because they occurred through a separate company with no Illinois nexus. However, according to complaints filed by Illinois Attorney General Lisa Madigan, nexus was established for the internet companies when their brick-and-mortar affiliates accepted returns of merchandise purchased online by customers in Illinois. (Press Release, Illinois Attorney General Lisa Madigan, December 10, 2004)



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