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On January 15, 2005, Illinois Governor Rod Blagojevich signed into law P.A. 93-1068, amending the late payment penalties imposed under the Uniform Penalty and Interest Act (UPIA).

As stated in the act for returns due on and after January 1, 2005, a penalty shall be imposed for late payment or underpayment at the same 2% and 10% rules applicable for the tax period 2004, however, the 10% penalty is applicable for a period of 30 days after the due date of the return and prior to the date the Department has initiated an audit. Once the Department has initiated an audit, the penalty will be imposed at 20%, providing that the penalty shall be reduced to 15% if the entire amount due is paid not later than 30 days after the Department has provided the taxpayer with an amended return. The Department has the authority to rescind the 15% reduction if the taxpayer makes a claim for refund or credit of the tax, penalties, or interest determined to be due upon audit, unless the claim is filed pursuant to Section 506 of the Illinois Income Tax Act or to claim a carryover of a loss or credit.

The State of Illinois’ ability to rescind the discounted penalty also could reach to the taxpayer’s ability to make an appeal to the Board of Appeals. Essentially, a taxpayer may compromise the 5% reduction in penalties if appealing an audit determination. (Illinois Department of Revenue, 35 ILCS 735/3-3 as amended by P.A. 93-1068, amended January 15, 2005)


Wal-Mart, Target and Office Depot have agreed to pay $2.4 million in taxes owed on sales made over the internet. The companies had originally argued that they were not responsible for tax on the sales due to the fact that the dot-com entities were separate from the companies and were not located in Illinois. The Illinois Attorney General said they did have connections to the state because the stores of the parent company would accept returns from purchases made from the online subsidiaries. (Press Release, Office of Illinois Attorney General, December 10, 2004)


The 2005 $5.1 billion city budget was passed by the City Council on December 16, 2004. The new budget and revenue package increases the total sales tax in the city by 0.25% to 9% effective July 1, 2005. Also effective July 1, the hotel tax will increase by 0.5% to 3.5%. There are other increases effective January 1, 2005 and include raising tax on cigarettes from 16 cents to 48 cents, wine tax from 4 to 5 cents a bottle, hard liquor tax from 30 to 37 cents a bottle.
Details of the budget and revenue package should soon be available on the City of Chicago’s web site:


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)


The Illinois Attorney General has filed a complaint against an online retailer under the Illinois Whistleblower Act. The complaint claims that the online retailer failed to collect Illinois use tax on its sales to Illinois customers. This comes two months after a prior complaint was dismissed by the Illinois circuit court. The prior complaint was filed under the same Whistleblower act by a law firm against Target, Wal-Mart, Office Depot and other online retailers. The original complaint was dismissed for a lack of subject matter jurisdiction. (Prior complaint was “State of Illinois, ex rel. Beeler, Schad, and Diamond, P.C. v. Target Corp”)



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