Following the Illinois Supreme Court’s (“the Court”) decision in Hartney Fuel Oil Co. v. Hamer (“Hartney”), the Illinois Department of Revenue (“the Department”) issued emergency administrative rules on January 22, 2014, for local sales tax allocation. Prior to the Court’s decision, retailers had sourced sales to municipalities with lower local taxes or entered into agreements with municipalities to refund much of the local taxes collected. However, the retailers had no significant activities in the locality except for the accepting of purchase orders. The municipalities where the majority of the retailers’ activities occurred were unable to collect the local sales tax even though they provided services such as fire and police protection to the retailers. The Court in Hartney invalidated the rule for determining the location of a retailer based on the location where the order was accepted for local sales tax. The Court determined that a more fact-intensive test was required to determine the situs for the sale.
Under the emergency rules, the test to determine the situs of sales includes:
- 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 Department’s emergency rules are in effect for 150 days unless action is taken to otherwise suspend them. The Department also proposed permanent regulations to replace the emergency rules. Both the emergency and proposed permanent rules are available at www.tax.illinois.gov.
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