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Effective July 1, 2017, Illinois has enacted an exemption from the Hotel Operators’ Occupation Tax for entities that are organized and operated exclusively for religious purposes and possess an active Exemption Identification Number (EIN).  The exemption applies when the entity acts as a hotel operator renting, leasing or letting rooms in furtherance of the purposes for which it is organized; or to entities that are organized and operated exclusively for religious purposes, possess an active EIN, and rent the rooms in furtherance of the purposes for which they are organized. For purposes of the Hotel Operators’ Occupation Tax, the term “hotel” now also includes retreat centers, conference centers and hunting lodges. (P.A. 100-213 (S.B. 587), Laws 2017)


On June 2, 2017, the Illinois Department of Revenue issued a general information letter in response to an inquiry about whether a taxpayer’s medical transcription service activities created nexus with Illinois, necessitating the payment of sales tax. For the medical transcription service, the taxpayer hired independent contractors who worked from home using their own equipment. The independent contractors performed work for customers in various states, including Illinois.


Sales tax is imposed in Illinois upon people “engaged in the business of selling tangible personal property to purchasers for use or consumption” (fully described in 86 Ill. Adm. Code 150.201(i)). In the letter, the Department of Revenue explained that, generally, if no tangible personal property is transferred, then a transaction is not subject to Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax. Since no tangible property is transferred in connection with the medical transcription services, no tax is due. 


Regarding the creation of nexus with Illinois, the department clarified the characteristics of an “Illinois retailer” and a retailer “maintaining a place of business” in Illinois. Such a retailer must collect and remit use tax to the state to conform with the retailer’s occupation tax act and use tax act.  Since there was no tax due, the Department did not give a definitive answer regarding nexus under the facts of using independent contractors to perform these services. (General Information Letter ST 17-0018-GIL, Illinois Department of Revenue, June 2, 2017).


In a substantial win for taxpayers in the class action lawsuit nightmares,an Illinois court held that a Nevada-based online retailer that sells cosmetics online and through catalogs did not have substantial nexus with Illinois and was therefore not required to collect sales tax in Illinois. The online retailer licensed the brand. A brick-and-mortar company also licensed the brand and sold the cosmetics at its retail stores. The online retailer mailed catalogs into Illinois several times a year. The catalogs were also available at stores owned by the brick-and-mortar company. In Illinois, a retailer has substantial nexus and is required to collect and remit Illinois sales tax if the retailer solicits orders by mail and benefits from marketing activities in Illinois.


The court held that the online retailer did not have a physical presence in Illinois, and the brick-and-mortar company did not act as an agent of the online retailer or act on behalf of the online retailer even though it had the online retailer’s catalogs in its stores. The online retailer and brick-and-mortar company were separate entities, maintained separate merchandise and employed separate marketing schemes. In fact, the two companies competed for business. The two companies had separate financial records and income tax returns. Further, the brick-and-mortar company did not accept returns of merchandise purchased from the online retailer. As a result, the online retailer did not benefit from the brick-and-mortar company’s marketing activities.


The court also held that the online retailer did not knowingly fail to pay an Illinois tax obligation under the False Claims Act. The online retailer had consulted with tax advisors about its potential tax liability in Illinois and was informed that it did not have nexus in Illinois. The online retailer did not collect sales tax in Illinois until it changed its business operations and determined it had nexus in-state. (State of Illinois v. Lush Internet Inc., Appellate Court of Illinois, First District, No. 1-16-1601, September 25, 2017)


Effective July 1, 2017, graphic arts machinery and equipment are included in the Illinois manufacturing and assembling machinery and equipment exemption. Previously, equipment used in the graphic arts and printing industry were excluded from the manufacturing exemption as there was a separate exemption.  This exemption expired August 30, 2014 under the Sunset provisions.  For more information see our prior tip. (Illinois SB 9)


The Multistate Tax Commission (MTC) has announced a sales/use tax and income/franchise tax amnesty program for online sellers that will run from August 17 to November 1, 2017 (previously October 17, 2017). Qualified online sellers with potential tax liability may be able to use the MTC's voluntary disclosure agreement (VDA) to negotiate a settlement during the amnesty period if they meet certain eligibility requirements. Taxpayers that have not been contacted by any of the states participating in the amnesty program will be able to apply to start remitting sales tax on future sales without penalty or liability for unpaid, prior accumulated sales tax in the participating states. 25 MTC member states have agreed to participate in the amnesty program. The participating states include: 


  • Alabama
  • Arkansas
  • Colorado (sales/use tax only)
  • Connecticut
  • District of Columbia (may not waive all prior periods)
  • Florida
  • Idaho
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Massachusetts (special provisions apply)
  • Minnesota (special provisions apply)
  • Missouri
  • Nebraska (may not waive all prior periods)
  • New Jersey
  • North Carolina
  • Oklahoma
  • Rhode Island
  • South Dakota
  • Tennessee
  • Texas 
  • Utah
  • Vermont
  • Wisconsin (will require payment of back tax and interest for a lookback period commencing January 1, 2015 for sales/use tax, and including the prior tax years of 2015 and 2016 for income/franchise tax)


Some of the additional states may require a limited look-back period for prior tax liabilities. Sellers who wish to participate in the program will need to file the voluntary disclosure program paperwork during the program dates. The MTC will route the paperwork for each participating state for which the seller is seeking amnesty protection. For more details visit the MTC website.


UPDATE: The Multistate Tax Commission's online seller amnesty program is now over. If you didn't take advantage of this program but realize you need to evaluate your activities, you can contact us here.



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