A recently released private letter ruling from the Illinois Department of Revenue conducted a “fact-specific inquiry” to determine that three elements of a taxpayer’s (“Company’s”) business should be sourced to three separate locations.1
Company sells and distributes fuel oil and lubrication products in Illinois. Company is headquartered outside of Illinois, but Company maintains a fuel oil sales and administrative office in an Illinois location (“City One”), a lubrication products warehouse and sales office in another location (“City Two”), two fuel storage facilities in Illinois [one in City One and the other at a third location (“City Three”)], and had gasoline pumps at the locations in Cities Two and Three.
The Department used a sourcing regulation in its analysis to determine which local taxes would apply:
The occupation of selling is comprised of the composite of many activities extending from the preparation for, and the obtaining of, orders for goods to the final consummation of the sale by the passing of title and payment of the purchase price. Thus, establishing 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.2
The private letter ruling applied this fact-specific inquiry to each business line, asserting that with respect to sales of fuel oil for delivery in Illinois, the Company was engaged in the majority (three out of five) of its primary fuel selling activities in City One. City One was the location where employees with negotiation and selling authority were stationed, where offers were prepared, made, and accepted, and where invoices were sent out to customers. In light of this analysis, the Department sourced the fuel oil sales to City One.
Subsequent business lines were similarly examined:
- Sales of lubricant products were made in City Two using inventory stored at a City Two facility, establishing City Two as the source of the lubricant sales; and
- Over-the-counter gasoline sales at pumps in Cities Two and Three served as the justification for sourcing such sales to Cities Two and Three, respectively.
The private letter ruling makes the distinction that while City One could be identified as a sort of in-state headquarters for the Company, it’s only a headquarters for purposes of fuel sales, which could imply that the other sales are sufficiently distinct business activities that they should be sourced to the location from which they are arranged and/or dispatched.
This represents an application of the Department of Revenue’s home-rule sourcing regulation, amended in 2014 to reflect an Illinois Supreme Court decision [Hartney Fuel Oil Company v. Hamer, 2013 IL 115130 (November 21, 2013)]. The older sourcing regulation relied almost exclusively on point of sale as a means for determining sourcing and had created a business environment where companies routed their purchase orders through low-tax municipalities to avoid the higher tax rates of cities like Chicago.
1 Illinois Department of Revenue, Private Letter Ruling ST 16-0007-PLR (July 29, 2016, released November 2016).
2 86 Ill. Adm. Code 270.115.