Illinois Issues Emergency Rules on Tax Situs

Illinois has issued emergency rules regarding the sourcing of local retailers’ occupation tax liabilities, effective January 22, 2014, for 150 days. The emergency rules focus on a fact-specific inquiry into the composite of selling activities that comprise a retailer’s business in order to determine the jurisdiction in which the retailer must collect local retailers’ tax. The emergency rules provide guidance on how to apply the composite of selling activities test to common selling operations. The rules note that for most retailers, the jurisdiction in which they are engaged in the business of selling is not open to reasonable dispute. The rules also address sourcing of local tax liability for a number of other seller situations including: in-state inventory/out-of state selling activity, long-term or blanket contracts, sales through vending machines, sales from vehicles carrying an uncommitted stock of goods, sales of coal or other minerals, and acceptance of orders in a county where the seller is not doing business.The rules also outline the application of the composite of selling activities test to multijurisdictional intrastate retailers. The rules list primary and secondary factors to consider, as well as the principles used to determine a seller’s location. Primary factors include the location of various activities, such as the location of officers, executives and employees with discretion to negotiate on behalf of, and to bind, the seller and the location where offers are prepared and made, among other factors. The secondary factors, which can be used if the jurisdiction is not clear after applying the primary factors, look to the locations of additional selling activities. The rules state that if determining the taxing jurisdiction is a close question for multijurisdictional sellers, the department will look to the principle that the retailer incurs local tax in the jurisdiction where it “enjoyed the greater part of governmental protection and benefitted by being conducted under that protection.”

The emergency rules were issued in response to the Illinois Supreme Court’s invalidation of the department’s prior tax situs rules in Hartney Fuel Oil Co. v. Hamer. To see our previous news item on this case, click here: Tax Situs Regulation Held Invalid in Illinois. The Department also issued draft permanent rules. Any business with concerns should contact the Department of Revenue during their comment period. Copies of the emergency and draft regulations can be found here.

For an update to this item, click here: Illinois Issues Final Rules on Tax Situs.

(86 Ill. Adm. Code 220-115, 86 Ill Adm. Code 270-115, 86 Ill. Adm. Code 320-115, 86 Ill. Adm. Code 370-115, 86 Ill Adm. Code 395-115, 86 Ill. Adm. Code 630-120, 86 Ill. Adm. Code 670-115, Ill Adm. Code 690-115, 86 Ill. Adm. Code 693-115, and 86 Ill. Adm. Code 695-115, Illinois Department of Revenue, effective as noted)

Posted on January 28, 2014