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An Illinois appellate court held that an out-of-state company was not liable for damages and penalties in a qui tam lawsuit brought against the company for alleged failure to pay use tax on shipping charges. Under the False Claims Act, taxpayers that improperly avoid their duty to pay tax can be held liable for perpetuating fraud against the state of Illinois. In Illinois, shipping charges are taxable unless they are paid under a contract separate from the purchase contract. When making purchases, the company’s customers selected the type of delivery, and the charges were separately stated from the product price on the invoice or order confirmation. Relying on previous audits and other factors, it was determined that the company did not collect use tax on shipping charges for products delivered to Illinois customers. The appellate court affirmed the lower court’s judgment that the company did not act in reckless disregard by not collecting use tax and declined to consider whether the company had a duty to collect tax on the shipping charges. The Court found that innocent mistakes or negligence are not actionable as false claims. This is a good result against qui tam and class action cases related to sales tax in Illinois. (State ex rel Schad, Diamond & Shedden, P.C. v. National Business Furniture, LLC, Appellate Court of Illinois, First District, No. 12 L 84, August 1, 2016)


A car rental company’s short-term vehicle rental that occurred outside Chicago was subject to the Chicago personal property lease transaction tax since the vehicle was used in Chicago. The tax is imposed on a lessee who is a Chicago resident as shown by the renter’s driver’s license who leases personal property in Chicago or primarily uses leased property for more than 50% of the time in Chicago. A Department of Finance ruling stated that the tax applies to rentals made by car rental companies inside Chicago and within three miles of Chicago’s border. An appellate court reversing the Trial Court, found that taxing non-Chicago rental transactions did not exceed Chicago’s home-rule authority since the connection between the rental company, the use of the car, and the city of Chicago is reasonable and clear. The Court discussed the nature of the tax as being more of a use tax than a transaction tax and therefore the City has the right to require a retailer who has nexus with the City to collect the tax on transactions that occur outside its jurisdiction.  Rental companies do not have standing to challenge the federal constitutionality of the ordinance since it imposes tax on the use of the property in Chicago, which is not an extraterritorial transaction. Imposition of the tax and the city’s guidance on keeping vehicle use records do not exceed the scope of the ordinance. The lessor has options on how to document the use occurs outside the City.  It is reasonable to require a taxpayer to document an exemption from the tax.  (Hertz Corp v. City of Chicago, Appellate Court of Illinois, First District, No. 1-12-3210, 1-12-3211, September 22, 2015, released December 10, 2015)


On February 11, 2016, the U.S. Senate approved a permanent extension of the Internet Tax Freedom Act (ITFA) that is included in H.R. 644, the Trade Facilitation and Trade Enforcement Act of 2015. The bill also establishes an end date of June 30, 2020 for the seven states that currently impose a tax on internet access: Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas, and Wisconsin. President Obama is expected to sign the permanent extension of the ITFA into law. The House of Representatives had previously passed H.R. 235, the Permanent Internet Tax Freedom Act, on December 15, 2015.  For our previous news item on this topic, visit Internet Tax Freedom Act Extended Through October 1, 2016.


UPDATE: On February 24, 2016, President Barack Obama signed into law the permanent extension of the Internet Tax Freedom Act.


(Trade Facilitation and Trade Enforcement Act of 2015)


For purposes of Illinois public utilities tax, the Renewable Energy, Energy Efficiency, and Coal Resources Development Law of 1997 is repealed effective December 31, 2020. The law previously was set to repeal effective December 12, 2015. This law provides for a trust fund to provide grants, loans and other incentives to foster investment in and the development and use of renewable energy sources in Illinois.  (P.A. 99-489 (H.B. 1365), Laws 2015, effective December 4, 2015)


On December 18, 2015, President Barack Obama signed H.R. 2029 – Consolidated Appropriations Act, 2016. The Act extends the Internet Tax Freedom Act (ITFA) through October 1, 2016. Prior provisions that grandfather taxes that existed prior to October 1, 1998 are also extended through October 1, 2016. For our previous news item on this topic, see Internet Tax Freedom Act Extended Until December 11, 2015. (H.R. 2029 – Consolidated Appropriations Act, 2016)



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