In Hartney Fuel Oil Company v. Hamer, 2013 IL 115130 (November 21, 2013), the Illinois Supreme Court resolved a longstanding controversy over the meaning of Illinois’ local Retailers’ Occupation Tax Acts. The Court concluded that a seller incurs retailers’ occupation taxes in the local jurisdiction where its predominant selling activities occur, even if it also engages in very limited activities in other places.
The decision in Hartney will have no impact on the overwhelming majority of Illinois retailers because most retailers are engaged in traditional over-the-counter sales, and these retailers consistently have collected and paid local sales tax for the jurisdiction where their sales take place; that is, the place where goods and money are exchanged. This traditional method of doing business and collecting taxes is entirely consistent with the Supreme Court’s decision in Hartney.
Before the decision in Hartney, however, a number of retailers with selling activities in multiple jurisdictions sought to collect and pay local retailers’ occupation taxes only in the low tax rate jurisdictions where they arranged for final acceptance of purchase orders, even when their predominant selling activities occurred in other places. In Hartney, the Supreme Court rejected this practice as contrary to Illinois law. Businesses engaged in this practice should revise their procedures for reporting local retailer occupation taxes to comply with the Court’s decision in Hartney. In determining whether enforcement action is warranted against a retailer for failure to collect and pay the correct local retailers’ occupation taxes going forward, the Department will consider whether the taxpayer has made a reasonable, prompt, good faith effort to comply with the Court’s decision.
Update (03/10/2014): Below are the statements the Department of Revenue has received regarding the proposed rules on sales tax sourcing.
Update (02/28/2014): The Department of Revenue is holding a public hearing on its proposed rules about local sales tax sourcing on Friday, March 21, 2014. This hearing will be held simultaneously at the Department’s offices in Springfield and Chicago and will be simulcast as a video conference. Each person intending to present testimony at the hearing must provide a written summary of his or her testimony to the Department on or before the close of business on Monday, March 17, 2014.
Update (01/22/2014): Today IDOR filed both emergency and proposed rules in response to the Supreme Court’s decision in Hartney and to provide additional guidance to taxpayers in ascertaining their local retailers’ occupation tax liabilities. Please note that Title 86 of the Illinois Administrative Code, which is reserved for Department regulations, currently contains 10 separate parts that implement different local taxes. These parts include:
It has been necessary to amend each of these parts to reflect the Hartney decision. The substantive provisions of all the emergency rules are identical to each other; similarly, the substantive provisions of all the proposed rules are identical to each other. However, there are minor differences between each part. These differences are due to the unique nature of each tax affected, the structure of the existing rules in that part and different statutory citations for each tax. Please note that the only substantive difference between each emergency rule and its proposed counterpart is that the proposed rule does not contain the subsection entitled “Long Term or Blanket Contracts” found in the emergency rule.
We look forward to working with all interested parties throughout the rulemaking process.
(Please see the Proposed Rules area for information on the current status of the following.)
Update (01/07/2014): The Illinois Department of Revenue, in an effort to gather input from all interested parties, held a public hearing on Thursday, December 12, 2013. Below are the written comments from that hearing.