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Illinois: New Sales Tax Sourcing Rules

  • Jul 16, 2014 | Gail Cole

 A decision has been made. Changes enacted.

In November 21, 2013, the Illinois Supreme Court invalidated the way the Illinois Department of Revenue had determined the location of taxable retailing activity for Hartney Fuel Oil Company. This prompted the department to adopt emergency sales tax sourcing regulations and start the process of establishing new sales tax sourcing rules for Illinois. The adopted final regulation, which reflects changes made in response to comments, is now available in the Illinois Register (vol. 38, issue 28, section 14).  It took effect on June 25, 2014.

As summarized in the Illinois Register:

“This rulemaking provides guidance for retailers to determine what local taxes they incur based on the location where they are ‘engaged in the business of selling tangible personal property.’ The Department’s prior regulation governing local jurisdictional issues was invalidated by the Illinois Supreme Court in Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130.”

The section entitled Retailer’s Selling Activities Determine Taxing Jurisdiction, Occupation of Selling addresses the imposition of tax by home rule municipalities. It explains the following:

  • “Because the statute imposes a tax on the retail business of selling, and not on specific sales, the jurisdiction in which the sale takes place is not necessarily the jurisdiction where the local retailers’ occupation tax is owed. Rather, it is the jurisdiction where the seller is engaged in the business of selling that can impose the tax.”
  • “[E]stablishing where ‘the taxable business of selling is being carried on’ requires a fact-specific inquiry into the composite of activities that comprise the retailer’s business.”
  • “A seller incurs Home Rule Municipal Retailers’ Occupation Tax if its predominant and most important selling activities take place in the municipality. Isolated or limited business activities within a jurisdiction do not constitute engaging in the business of selling in that jurisdiction when other more significant selling activities occur outside the jurisdiction, and the business predominantly takes advantage of government services provided by other jurisdictions.”
  • “The retailer is engaged in the business of selling in the taxing jurisdiction where its predominant and most important selling activities tax place.”

The full text of the adopted amendment is available in the Illinois Register. Anyone engaged in the business of selling tangible personal property or taxable services in Illinois is advised to read it. Additional information regarding the Hartney Decision and the department’s response is available here.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.