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In the lawsuit filed by the Performance Marketing Association (PMA) claiming Illinois P.A. 96-1544 which was effective July 1, 2011 is unconstitutional, an Illinois judge ruled in favor of the PMA in their court case challenging the Illinois click-through nexus law pertaining to sales and use tax. The judge ruled that the law violates the Commerce Clause of the U.S. Constitution and that the activity described in the statute does not establish nexus. The judge ruled that the statute is premature, given the Congressional moratorium related to internet tax fairness. For more information regarding the Illinois statute regarding Affiliate and Click Through Nexus see our prior news item. For an update to this news item, click here. (Performance Marketing Association, Inc. v. Hamer, Director, Illinois Department of Revenue, Circuit Court of Cook County, Illinois County Department, Law Division, 2011 CH 26333, May 7, 2012)


The Illinois Department of Revenue has posted on its website a database that provides rates for both state and local taxes. The database contains the rates for income, sales, excise, property, motor fuel, use, and gaming taxes as well as other miscellaneous taxes, fees, and surcharges for taxing districts in the state. The database specifies whether taxes are fixed rate or location-based rate. Legislation passed in 2011 required the creation of the database. The database can be viewed on the Department website here. (Tax Rate Database, Illinois Department of Revenue, December 30, 2011)


The U.S. District Court for the Northern District of Illinois has ruled that a 7% hotel tax imposed by Rosemont, Illinois, on room rental fees charged by online travel companies is a valid use tax and does not violate the Commerce Clause of the U.S. Constitution. The court found that the online travel companies were “owners” for the purposes of the local hotel tax ordinance because customers had to pay room charges to the companies before accessing their hotel rooms. The court held that the full rental fees paid by customers to online travel companies were taxable. Online travel companies charged Rosemont customers a room rental fee that included the amount the hotels charged the companies plus the companies’ markup on the hotel charges. The hotel tax ordinance intended to tax the amount that customers pay to occupy a hotel room in Rosemont. Customers of the online travel companies paid the companies’ full charges for the right to occupy hotel rooms there. The fact that online travel companies facilitated travel-related services was held to be incidental to the room rental. Illinois law states that a tax on a hotel room rental is a use tax. The court found that the hotel tax did not violate the Commerce Clause. The online travel companies had nexus in Illinois because the tax was levied to use a hotel room in Illinois, the tax was paid by the person who uses the room, and the travel companies contracted with Illinois hotels for the right to market, facilitate, and book reservations from which they profit. The tax was fairly apportioned because it is imposed on a use that can only happen in one place. Additionally, the tax doesn’t discriminate against interstate commerce since it is applied at the same rate to every hotel reservation in Rosemont. The tax is related to Illinois services because the renter has advantage of state services such as police and fire protection while staying in Illinois. (The Village of Rosemont v., Inc., U.S. District Court, N.D. Illinois, No. 09 C 4438, October 14, 2011)


The sales of call tracking services by an Illinois company to its customers are not subject to Illinois sales and use tax. The call tracking services involve the electronic transfer or downloading of information or data, which is not considered a transfer of tangible personal property. As a result, the services are not subject to Illinois sales and use tax. Any tangible personal property transferred along with the sale of services would be subject to sales or use tax. While the company in question is legally providing the services, it engages a third-party company to provide the services to its customers on its behalf. The third-party company uses 1-800 numbers in providing the services. The third-party company receives calls on the 1-800 numbers then transfers the calls to the customers. In this scenario, the third-party company is considered to be the end user of the 1-800 numbers and, therefore, is liable for telecommunications excise tax on the purchase of the numbers. (General Information Letter ST 10-0069-GIL, Illinois Department of Revenue, August 10, 2010)


An Illinois sales tax regulation exempting graphic arts machinery and equipment from the Retailers’ Occupation Tax was updated to include the new sunset date of the exemption as August 30, 2014. It also enacts the requirement that qualifying graphic arts machinery and equipment must be used primarily in the production of tangible personal property for wholesale or retail sale or lease as of July 30, 2009. This requirement also applies to new and used repair and replacement parts, including equipment that is manufactured on special order to be used primarily in graphics art production. Additionally, persons engaged primarily in the business of printing or publishing newspapers or magazines that qualify as newsprint or ink (as specified by processes described in the North American Industry Classification System) are deemed to be engaged in graphic arts production. (86 Ill. Adm. Code 130.325, Illinois Department of Revenue, effective January 24, 2011)



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