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Illinois has issued a general information letter stating that the best evidence that transportation or delivery charges were agreed to separately from the selling price for sales tax exemption purposes is a separate contract for those charges. Documentation showing that the buyer had the option of taking delivery at the seller’s location or having the property delivered by the seller, plus a delivery charge, is also sufficient evidence. Separately listing delivery charges on an invoice is not sufficient to demonstrate a separate agreement.  If delivery charges are agreed to separately from the selling price of property, the delivery charges are not a part of the selling price of the property sold and are a tax-exempt service charge. The Department of Revenue noted that it has filed a proposed rulemaking concerning the taxation of delivery charges partially in response to the recent Qui Tam cases filed against a number of retailers.  Rules related to the taxability of delivery charges are likely to change in Illinois based on these activities. .  (General Information Letter ST 12-0029-GIL, Illinois Department of Revenue, June 15, 2012, issued August 2012)


Illinois has enacted legislation requiring the Department of Commerce and Economic Opportunity to post information on its website regarding the recapture or claw back provisions relating to business exemptions and tax benefits available to businesses under the Corporate Accountability for Tax Expenditures Act. According to the legislation, the department must post the identity of each recipient from whom amounts were recaptured on or after the effective date of the Act; the date of the recapture; a summary of the reasons supporting the recapture; and the amount recaptured. (P.A. 97-721 (H.B. 1882), Laws 2012, effective June 29, 2012)


Changes have been made to an Illinois regulation on enterprise zone and high impact business programs relating to income tax, sales and use tax, electricity excise tax, and gas revenue tax. References to census data are updated to reflect newly available 2010 census date. Additionally, references to time periods for the unemployment rate test are updated. (14 Ill. Adm. Code 520.210, Department of Commerce and Economic Opportunity, effective August 1, 2011)


The City of Chicago, Cook County and the RTA in Illinois filed a lawsuit against the city of Kankakee, the city of Channahon, and other parties, seeking damages due to an alleged kickback scheme among Kankakee, Channahon, brokers, and certain Chicago retailers to divert sales tax revenue from Chicago and Cook County. Chicago and Cook County alleged that Kankakee and Channahon attracted corporations and revenue by offering Illinois retailers kickbacks of sales tax revenue if they purport to process retail sales through small offices set up in those municipalities. The Illinois Legislature attempted to stop such kickback schemes in 2004 by passing a law prohibiting municipalities from entering into sales tax kickback agreements. Chicago and Cook County alleged that Kankakee and Channahon continued entering into kickback arrangements with retailers and concealing the arrangements behind third-party brokers who “accept” sales in Kankakee and Channahon on behalf of the retailers and serve as an intermediary for the kickbacks.

In Illinois, the location where a sale occurs for purposes of determining which local government receives the sales tax is generally presumed to be the location where the sale is “accepted” by the retailer. Beginning in 2000, in order to convince retailers to accept sales in their towns, Kankakee and Channahon began offering retailers kickbacks of up to 85% of sales tax revenue received from those retailers’ sales. As a result, several large retailers opened up small sales acceptance offices in Kankakee and Channahon and declared their retail sales as being accepted there. Since the retailers’ primary sales operations remain in Chicago and elsewhere, Kankakee and Channahon receive the sales tax revenue, while Chicago and other municipalities provide the services for the bulk of the retailers’ operations. Consequently, the Illinois Legislature passed the statute prohibiting sales tax kickback agreements, effective June 1, 2004. Certain retailers allegedly evaded the 2004 statute by hiding their identities using brokers as intermediaries. Chicago and Cook County allege that the undisclosed retailers are located in Chicago and/or deliver their retail products to customers from locations in Chicago. As such, their sales should be subject to Chicago sales tax. This case is pending in the Circuit Court of Cook County in Illinois. (Case No. 3426611CH, complaint filed October 3, 2011)


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)



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