Illinois Supreme Court Strikes Down Rule on Local Tax Collection

Nov 22nd, 2013

On Thursday, the Illinois Supreme Court held that a state rule for determining the location of a sale was invalid.

Illinois permits certain localities to tax persons engaged in "the business of selling" tangible personal property in those localities. Illinois courts have held that this means that the location of "the business of selling" determines which tax applies. The state Department of Revenue ("Department") collects and enforces these taxes.

The contested Department rule indicated that the applicable tax was the tax in the place where purchase orders were accepted. Some Illinois businesses used this rule to avoid higher local taxes. They set up small offices solely to accept purchase orders in counties with lower tax rates. They conducted the rest of their business in counties with higher tax rates.

The Court ruled that the rule was too restrictive; the statutes and case law required a more fact-intensive approach to determine which local tax applied. The "business of selling" consists of more than just accepting purchase orders. To comply with the law, the Department had to look at where a company's whole "business of selling" took place rather than just where the company accepted purchase orders. Because the rule did not allow the Department to look at the whole business, it was invalid.