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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”)


Even though a tugboat company passed three out of four prongs of the Commerce Clause test under the U.S. Supreme Court test used in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), the tax apportioned by the state was found in violation of interstate commerce laws. The four prong test includes substantial nexus with the state, fair apportionment, non discrimination against interstate commerce, and a fair relationship to the services provided by the state. These criteria must be met so that a state taxing scheme or particular state exemption does not interfere with interstate commerce. Although the tugboats spent more than half of their time pushing barges in Illinois waters, they did not receive any services from the state while using Illinois waterways. The taxation of fuel and supplies loaded onto tugboats outside the state violated the U.S. Constitution Commerce Clause since all four prongs were not met successfully. (American River Transportation Company v. Glen L. Bower, Docket No. 2-02-1290, July 21, 2004)



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