New sales tax allocation rules filed
rules effective immediately
Send a link to a friend
[January 24, 2014]
SPRINGFIELD — The Illinois
Department of Revenue filed emergency rules on Wednesday to comply
with the Supreme Court's Nov. 21, 2013, decision in Hartney Fuel Oil
Co. v. Hamer and to provide Illinois businesses the necessary
guidance about how they should allocate the local sales taxes they
collect from their customers.
In recent years, the Illinois Department of Revenue has identified
situations where a retailer artificially sourced sales to a
municipality where the business of selling was not occurring in any
meaningful way. In many of these cases, the retailer or its adviser
received in return from the municipality a rebate of up to 85
percent of the sales taxes paid. These schemes diverted revenues
from the governmental bodies that actually provided services to the
retailer, such as fire and police protection. The Department of
Revenue has challenged these schemes when auditing these businesses.
The court's decision and the new rules achieve a result that the
department has sought for years, clarifying that sales taxes must be
paid in the community where the bulk of the business activities
occur. These new rules will help to ensure that the correct amount
of local sales tax is collected and properly distributed. No state
revenue is at issue.
The emergency rules were necessary after the Illinois Supreme
Court held that the prior rules were invalid because they were
inconsistent with the Retailers' Occupation Tax Act The new rules
provide Illinois businesses clear guidance for the vast majority of
retail sales, including over-the-counter sales, sales where the
selling activities occur out-of-state but are filled from in-state
inventory, and other examples. In other situations where business
activities are conducted at multiple locations, the rules set out
the primary selling activities to be considered, such as:
Does the location
house company executives with the authority to negotiate and
finalize sales transactions?
Is this the
location where purchase orders are accepted or other contracting
actions that bind the seller to the sale are completed?
Is the inventory of the goods to be
sold housed in this location?
The new rules also provide additional secondary factors to be
considered if needed. However, consistent with the Hartney decision,
merely relocating purchase order acceptance to a community without
conducting any other business in that community will not be
sufficient to allocate sales to that community.
[to top of second column]
The emergency rules will be in effect for 150 days unless the
Joint Committee on Administrative Rules, or JCAR, votes by a
three-fifths majority of the 12-member panel, or eight votes, to
suspend the rules.
In addition to the emergency rules, the Illinois Department of
Revenue also filed proposed permanent rules that will replace the
emergency rules after the JCAR review process. There is a 45-day
first notice period, during which local governments, industry groups
and concerned members of the public can file comments or request a
public hearing. During the second notice period, also 45 days long,
the rules and any modifications or amendments will be reviewed by
JCAR. The committee may request from the Department of Revenue
additional clarification or information, which must be supplied
during the review. At the end of that time, if the committee takes
no action, the rules become permanent and any further changes must
be filed through a new rulemaking process. In order to stop a rule
from becoming permanent, three-fifths of the panel must vote to
overturn the rule.
Copies of the emergency rules and the proposed permanent rules
are posted at
Department of Revenue file received from
Illinois Office of
Communication and Information]