Out-of-State Company Not Liable for Not Remitting Use Tax on Shipping Charges in Illinois

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)

Posted on August 22, 2016