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A distribution company’s sales of fuel, lubricant products, and gas were sourced to the cities in which the Illinois Department of Revenue determined the company was engaged in primary selling activities for local sales tax purposes. Generally, in Illinois, for local tax purposes, sales are sourced to the location where three or more of a company’s primary sales activities take place. The distributor had a fuel oil sales and administrative office in city 1, a lubrication products warehouse and sales office in city 2, and a fuel storage facility in city 3. In this case, fuel sales were sourced to city 1, and lubricant sales were sourced to city 2. Sales of gasoline at pumps in city 2 and city 3 were sourced to these cities, since the company made over-the-counter sales at these locations.(Private Letter Ruling, ST 16-0007-PLR, Illinois Department of Revenue, July 29, 2016, released November 2016)

(12/20/2016)

On November 8, 2016, four jurisdictions in California and Colorado approved “soda taxes” through ballot measure. San Francisco, Oakland, and Albany, CA each approved “soda taxes” in the amount of one-cent per ounce. Boulder, CO approved a tax in the amount of two-cents per ounce. On November 10, 2016, the County Board in Cook County, IL (which includes Chicago) approved a tax in the amount of one-cent per ounce. It should be noted that Chicago, IL has imposed a 3% soft drink tax since 1993. These jurisdictions join Berkeley, CA and Philadelphia, PA, which have also adopted soda taxes.

(12/04/2016)

Finally a positive result in the class action cases related to sales tax in Illinois! An Illinois appellate court has held that a customer is barred from bringing a claim against a "take-and-bake" franchise pizza restaurant to recover sales tax overpaid on the purchase of an uncooked pizza, based on the voluntary payment doctrine. The doctrine prevents recovery of voluntarily overpaid taxes unless the transaction involved fraud, misrepresentation or mistake of fact, or the taxes were paid under duress. The customer purchased an uncooked pizza from the restaurant and paid sales tax on the purchase. The customer pursued a class action lawsuit against the franchise, claiming that the company engaged in fraud by not charging the lower tax rate applicable to food products that are sold not ready for immediate consumption. The customer did not establish a sufficient claim for fraud, the sales receipt put the customer on notice that he had paid the incorrect amount of tax, and a specialty item at a restaurant was not such a necessary item that it was purchased under duress. As a result, the class action lawsuit was denied. Based on this decision, if your company is hit with a class action case on sales tax, we recommend you talk to an Illinois attorney who specializes in sales and use taxes before making any decisions about steps to take.  If you need recommendations, please contact us.  (Karpowicz v. Papa Murphy's International, LLC, Appellate Court of Illinois, Fifth District, No. 5-15-0320, July 5, 2016)

(09/28/2016)

On August 25, 2016, House Judiciary Committee Chairman Robert Goodlatte released a discussion draft of the Online Sales Simplification Act of 2016. The legislation would implement a “hybrid origin” approach for remote sales. Under the legislation, states could impose sales tax on remote sales if the origin state participates in a clearinghouse.In this case, the tax is based on the origin state’s baseand taxability rules. The rate would be the origin state rate, unless the destination state participates. In that case, the rate used would be a single state-wide rate determined by each participating destination state. A remote seller would only remit sales tax to its origin state for all remote sales. Only the origin state would be able to audit a seller for remote sales. Non-participating states would not be able to receive distributions from the clearinghouse. Sellers would be required to provide reporting for remotes sales into participating states to the Clearinghouse so it can distribute the tax to the destination state. We will continue to monitor activity and update when the official bill is introduced.  (Discussion draft of Online Sales Simplification Act of 2016)

(09/08/2016)

On July 14, 2016, Rep. Jim Sensenbrenner (R-WI) introduced the No Regulation Without Representation Act of 2016.  Taking the opposite approach of the Marketplace Fairness Act and Remote Transactions Parity Act, this proposed bill would limit the ability of states to require remote sellers to collect use tax. If enacted, the Act would codify the physical presence requirement established by the US Supreme Court in Quill Corp v. North Dakota.  The bill would define physical presence and create a de minimis threshold. If enacted, the bill would preempt click-through nexus, affiliate nexus, reporting requirements and marketplace nexus legislation. The bill would be effective as of January 1, 2017. The bill defines “seller” and provides that states and localities may not:

 

  • Obligate a person to collect a sales, use or similar tax; 
  • Obligate a person to report sales; 
  • Assess a tax on a person; or 
  • Treat the person as doing business in a state or locality for purposes of such tax unless the person has a physical presence in the jurisdiction during the calendar quarter that the obligation or assessment is imposed.

 

Persons would be considered to have a physical presence only if during the calendar year the person: 

 

  • Owns or leases real or tangible personal property in the state; 
  • Has one or more employees, agents or independent contractors in the state specifically soliciting product or service orders from customers in the state or providing design, installation or repair services there; or 
  • Maintains an office in-state with three or more employees for any purpose.

 

Physical presence would not include: 

 

  • Click-through referral agreements with in-state persons who receive commissions for referring customers to the seller; 
  • Presence for less than 15 days in a taxable year; 
  • Product delivery provided by a common carrier; or 
  • Internet advertising services not exclusively directed towards, or exclusively soliciting in-state customers.

 

The bill defines seller to exclude marketplace providers; referrers; third-party delivery services in which the seller does not have an ownership interest; and credit card issuers, transaction or billing processors or financial intermediaries.Marketplace Providers are defined as any person other than the seller who facilitates a sale which includes listing or advertising the items or services for sale and either directly or indirectly collects gross receipts from the customer and transmits the amounts to the marketplace seller. (No Regulation Without Representation Act of 2016 (H.R. 5893))

 

UPDATE: This bill failed to pass during the 114th Congressional Session running from January 3, 2015 to January 3, 2017.  Therefore, this bill has died and would need to be reintroduced to be considered and voted on.

(08/23/2016)

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