Current through Register Vol. 48, No. 38, September 20, 2024
a)
Definitions
When used in this Part, "Municipality" includes all territory
located within the municipality, and refers to all cities, villages or
incorporated towns, including an incorporated town that has superseded a civil
township.
When used in this Part, "Selling Activities" refers to those
activities that comprise "an occupation, the business of which is to sell
tangible personal property at retail". "Selling Activities" includes "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". Ex-Cell-O Corp. v.
McKibbin, 383 Ill. 316, 321 (1943).
b) Retailer's Selling Activities Determine
Taxing Jurisdiction
1) Occupation of Selling.
The Home Rule Municipal Retailers' Occupation Tax Act [65 ILCS
5/8-11 -1] authorizes home rule municipalities to
impose a tax on those engaged in the business of selling tangible personal
property at retail within the municipality. 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.
Automatic Voting Machs. v. Daley, 409 Ill. 438, 447 (1951) ("In short, the tax
is imposed on the "occupation" of the retailer and not upon the "sales" as
such.") (citing Mahon v. Nudelman, 377 Ill. 331 (1941) and Standard Oil Co. v.
Dep't of Finance, 383 Ill. 136 (1943)); see also Young v. Hulman, 39 Ill. 2d
219, 225 (1968) ("the retailers occupational tax...imposes liability upon the
occupation of selling at retail and not on the sale itself"). Beginning January
1, 2021, Public Acts 101-31 and 101-604, which implemented the Leveling the
Playing Field for Illinois Retail Act, enacted specific provisions regarding
the location at which sales made by remote retailers and marketplace
facilitators occur. See subsections (e), (f), and (g) of this Section. The
changes made by these public acts and regulations promulgated thereunder at 86
Ill. Adm. Code 131 provide that the location where sales occur is frequently
the location to which the tangible personal property sold is shipped or
delivered or at which possession is taken by the purchaser ("destination
sourcing"). Except as specifically noted herein, the provisions of this Section
do not otherwise apply to remote retailers and marketplace
facilitators.
2) Composite of
Selling Activities. 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". Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316,
321 (1943). 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. Hartney Fuel Oil Co. v. Hamer, 2013 IL
115130, paragraph 32 (citing Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321-22
(1943)).
3) Multijurisdictional
Retailers. Some retailers are engaged in retail operations with selling
activities in multiple jurisdictions within the State, or in jurisdictions
located in more than one state. The selling activities that comprise these
businesses "are as varied as the methods which men select to carry on retail
business". Ex-Cell-O Corp. v. McKibbin, 383 Ill. 316, 321 (1943). Consequently,
"it is...not possible to prescribe by definition which of many activities must
take place in [a jurisdiction] to constitute it an occupation conducted in
[that jurisdiction]... [I]t is necessary to determine each case according to
the facts which reveal the method by which the business was conducted".
Ex-Cell-O-Corp. v. McKibbin, 383 Ill. 316, 321-22 (1943); see also Hartney Fuel
Oil Co. v. Hamer, 2013 IL 115130, paragraph 36.
4) Statutory Intent. It is the intent of the
Home Rule Municipal Retailers' Occupation Tax that retailers will incur local
retailers' occupation tax in a jurisdiction in Illinois if they "enjoyed the
greater part of governmental [services and] protection" in that jurisdiction.
Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130, paragraph 34 (quoting Svithiod
Singing Club v. McKibbin, 381 Ill. 194, 197 (1942)). By allowing the
municipality to impose tax on retailers who conduct business in the
municipality, the Home Rule Municipal Retailers' Occupation Tax Act links the
retailer's tax liability to where it principally enjoys the benefits of
government services. Svithiod Club v. McKibbin, 38 Ill. 194, 199
(1942).
5) Determination of Taxing
Jurisdiction. Applying the provisions in subsections (b)(1) and (b)(4), a
seller incurs Home Rule Municipal Retailers' Occupation Tax in a home rule
municipality 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. Ex-Cell-O Corp. v. McKibbin, 383 Ill.
316, 322-23 (1943); Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130, paragraphs
30 through 35.
6) Substance over
Form. The Department "may look through the form of a putatively
[multijurisdictional] transaction to its substance" to determine where "enough
of the business of selling took place" and, thus, where the seller is subject
to local retailers' occupation tax. Marshall & Huschart Mach. Co. v. Dep't
of Revenue, 18 Ill. 2d 496, 501 (1960); Fed. Bryant Mach. Co. v. Dep't of
Revenue, 41 Ill. 2d 64, 67 (1968); Int'l-Stanley Corp. v. Dep't of Revenue, 40
Ill. App. 3d 397, 406 (1st Dist. 1976); Hartney Fuel
Oil Co. v. Hamer, 2013 IL 115130, paragraph 31. For example, the Department
will not look to the location of a party that is owned by or has common
ownership with a supplier or a purchaser if the party does not, in substance,
conduct the selling activities related to the sales.
7) Same Standard Applies to Intrastate and
Interstate Retailers. For purposes of determining where a retailer is engaged
in the business of selling, it does not matter whether the retailer is engaged
in selling activities in taxing jurisdictions in multiple states, or in
multiple jurisdictions in this State. The legal standard is the same. The
retailer is engaged in the business of selling in the taxing jurisdiction where
its predominant and most important selling activities take place. Ex-Cell-O
Corp. v. McKibbin, 383 Ill. 316 (1943); Hartney Fuel Oil Co. v. Hamer, 2013 IL
115130, paragraph 30 ("the location of the business of selling inside or
outside the [S]tate controls..."). If a retailer engages in some selling
activities in a taxing jurisdiction in this State, but that retailer's
predominant selling activities are outside the State, the retailer's obligation
to collect and remit taxes on Illinois sales is governed by the Illinois Use
Tax Act [35
ILCS 105/2] (defining "retailer maintaining a place
of business in the State"); Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130,
paragraph 31 ("some combination of activities within the [S]tate are
insufficient for the retail occupation tax to apply") (citing Automatic Voting
Machs. v. Daley, 409 Ill. 438, 447 (1951)).
8) Because it is not practicable for
retailers to divide retailers' occupation tax among competing jurisdictions, a
retailer subject to the retailers' occupation tax is engaged in the business of
selling in only one location in Illinois for each sale.
c) Application of Composite of Selling
Activities Test to Retailers Conducting Selling Activities in Multiple Taxing
Jurisdictions. Every retailer maintaining a place of business in this State
shall determine the taxing jurisdictions in which it is engaged in the business
of selling with respect to each of its sales by applying the standards set
forth in this subsection (c), except when a retailer is engaged in particular
selling activities identified by a statute that specifies the taxing
jurisdiction where retailers engaged in those activities shall remit retailers'
occupation tax. These retailers shall remit retailers' occupation tax as
directed by statute, notwithstanding anything in this Part to the contrary.
1) Primary Selling Activities. Without
attempting to anticipate every kind of fact situation that may arise, taxpayers
that divide selling activities among personnel located in multiple
jurisdictions shall consider the following selling activities to determine
where they are engaged in the business of selling with respect to each sale. A
retailer is engaged in the business of selling in only one location for each
sale, but may be engaged in the business of selling in different locations for
different sales:
A) Location of sales
personnel exercising discretion and authority to solicit customers on behalf of
a seller and to bind the seller to the sale;
B) Location where the seller takes action
that binds it to the sale, which may be acceptance of purchase orders,
submission of offers subject to unilateral acceptance by the buyer, or other
actions that bind the seller to that sale;
C) Location where payment is tendered and
received, or from which invoices are issued with respect to each
sale;
D) Location of inventory if
tangible personal property that is sold is in the retailer's inventory at the
time of its sale or delivery; and
E) Location of the retailer's headquarters,
which is the principal place from which the business of selling tangible
personal property is directed or managed. In general, this is the place at
which the offices of the principal executives are located. When executive
authority is located in multiple jurisdictions, the place of daily operational
decision making is the headquarters.
2) A retailer engaging in three or more
primary selling activities in one location in the State for a particular sale
shall remit the retailers' occupation tax imposed by the taxing bodies with
authority to impose retailers' occupation tax on those engaged in the business
of selling in that location for that sale. A retailer engaging in three or more
primary selling activities for a particular sale outside the State shall
collect and remit tax to the State to the extent required by the Illinois Use
Tax Act [35
ILCS 105 ] for that sale, except as provided in
subsection (d).
3) Application of
Primary Selling Activities to Common Selling Operations. Retailers engaged in
selling operations with a single location where the primary selling activities
predominate constitute the vast majority of retailers in the State. Subsections
(c)(3)(A) through (c)(3)(C) apply the primary selling activities to certain
common selling operations and identify the location where the Department will
presume the seller is engaged in the business of selling with respect to each
sale.
A) Over the Counter Sales. If a
purchaser is present at a place of business owned or leased by a retailer and
there enters into an agreement with the retailer's sales personnel to purchase
tangible personal property, and makes payment for that property at the same
place of business, then the retailers' occupation tax for that sale is incurred
at the retailer's place of business where the sale occurred regardless of
whether the purchaser takes immediate possession of the tangible personal
property, or the retailer delivers or arranges for the property to be delivered
to the purchaser.
B) Sale through
Vending Machines. A retailer is engaged in the business of selling food,
beverages or other tangible personal property through a vending machine at the
location where the vending machine is located when the sale is made if:
i) the vending machine is a device operated
by coin, currency, credit card, token, coupon or similar device that dispenses
food, beverage or other tangible personal property;
ii) the food, beverage or other tangible
personal property is contained within the vending machine and dispensed from
the vending machine; and
iii) the
purchaser takes possession of the purchased food, beverage or other tangible
personal property immediately.
C) Sales from Vehicles Carrying Uncommitted
Stock of Goods. The seller's place of engaging in business when making sales
and deliveries (not just deliveries pursuant to previously completed sales, but
actual sales and deliveries) from a vehicle in which a stock of goods is being
carried for sale is the place at which the sales and deliveries actually are
made. The vehicle carrying the stock of goods for sale is regarded as a
portable place of business.
4) Secondary Selling Activities. If the
primary selling activities listed in subsection (c)(1) occur in multiple
jurisdictions, but no individual jurisdiction has more than two primary selling
activities, the following additional selling activities shall be considered to
determine the jurisdiction in which the retailer is engaged in the business of
selling.
A) Location where marketing and
solicitation occur;
B) Location
where the seller engages in activities necessary to procure goods for
sale;
C) Location of the retailer's
officers, executives or employees with authority to set prices or determine
other terms of sale if determinations are made in a location different than
that identified in subsection (c)(1)(A);
D) Location where purchase orders or other
contractual documents are received when purchase orders are accepted,
processed, or fulfilled in a location or locations different from where they
are received;
E) Location where
title passes; and
F) Location where
the retailer displays goods to prospective customers, such as a
showroom.
5) Except as
provided in subsection (d), a retailer that is not engaged in the business of
selling in a jurisdiction under subsection (c)(2) is engaged in the business of
selling in the jurisdiction where its inventory is located under subsection
(c)(1)(D), or where its headquarters is located under subsection (c)(1)(E),
whichever jurisdiction is the location where more selling activities occur,
considering both primary and secondary selling activities.
6) A retailer that is not engaged in the
business of selling in a jurisdiction under subsection (c)(2) or (c)(5) is
presumed to be engaged in the business of selling at the location of its
headquarters absent clear and convincing evidence to the contrary.
7) EXAMPLE: Company X is a manufacturer and
retailer of pet supplies headquartered in Chicago. Company X has a team of
sales personnel who work from their own homes located throughout Illinois.
Company X makes sales to customers in Illinois through a variety of channels
including internet sales, telephone sales, pet expositions, and brick and
mortar stores. Many of its sales to Illinois customers are through its remote
sales team who make sales over the phone and receive purchase orders over the
phone. Team members then input the order and customer payment information
received from the customer on the phone into the company's computer system.
Payment information is then uploaded to a third-party payment processor in
Kankakee, Illinois and processed. Invoices are sent to the customer from
Company X's headquarters in Chicago. Sales are fulfilled from inventory located
at the company's fulfillment center in Champaign, Illinois. A team member
working remotely from his home in Peoria, Illinois makes a sale over the phone
to a customer who had seen the item advertised in a magazine, and the item is
shipped to the customer's home in Kankakee, Illinois.
Applying the primary selling activities listed in (c)(1),
Peoria is the site with regard to (A) and (B); Kankakee or Chicago is the site
with regard to (C); Champaign is the site with regard to (D); and Chicago is
the site with regard to (E). Peoria and Chicago are both the site of two
primary selling activities. Because no site is the location of three primary
selling activities, the secondary selling activities listed in (c)(4) must be
considered.
Applying the secondary selling activities in (c)(4), Peoria is
the site with regard to (A) and (D); Chicago is the site with regard to (B) and
(C); Kankakee is the site with regard to (E); and, because in this sale the
customer viewed the items in a magazine and ordered over the phone, (F) is not
applicable. Again, Peoria and Chicago are both the site of two secondary
selling activities.
Under subsection (c)(5), because no site was the location of
three primary selling activities under (c)(1), the retailer is engaged in the
business of selling either in Champaign, where its inventory is located under
subsection (c)(1)(D), or in Chicago, where its headquarters is located under
subsection (c)(1)(E), whichever jurisdiction is the location where more selling
activities occur, considering both primary and secondary selling activities.
Because Champaign is the site of only one selling activity and Chicago is the
site of four, this sale would be sourced to Chicago.
d) Presumptions Applying to
Certain Selling Operations
1) For certain
classes of retailers with unique, complicated or widely dispersed selling
activities, determining appropriate tax situs in every situation presents
substantial administrative difficulties for both retailers and tax enforcement
personnel. Subsections (d)(2) through (d)(5) provide administrative "short
cuts" that balance the administrative difficulties presented by certain selling
operations against the need for accurate tax assessment.
2) In-State-Inventory/Out of State Selling
Activity. Except as provided in subsections (f) and (g) of this Section, if a
retailer's selling activities take place in taxing jurisdictions outside the
State, except that the tangible personal property that is sold is in an
inventory in the possession of the retailer located within a jurisdiction in
Illinois at the time of its sale (or is subsequently produced by the retailer
in the jurisdiction), then delivered in Illinois to the purchaser, the
jurisdiction where the property is located at the time of the sale or when it
is subsequently produced by the retailer will determine where the retailer is
engaged in business with respect to the sale. Chemed Corp., Inc. v. Department
of Revenue, 186 Ill. App. 3d 402 (4th Dist.
1989).
3) Sales over the Internet.
Except as provided in subsections (e), (f), and (g) of this Section, when a
customer places an order for the purchase of tangible personal property through
a consumer-based retailer website available without limitation on the world
wide web and the retailer ships the property to the customer in this State, the
Department will presume that the retailer's predominant selling activities take
place outside of this State. Therefore, such a sale will be subject to the
Illinois Use Tax Act unless there is clear and convincing evidence the
retailer's predominant and most important selling activities take place in this
State. Clear and convincing evidence sufficient to overcome the presumption
provided for in this subsection (d)(3) includes, but is not limited to, the
following circumstances:
A) the tangible
personal property that is sold is in an inventory in the possession of the
retailer located within a jurisdiction in Illinois at the time of its sale (or
is subsequently produced by the retailer in the jurisdiction), in which case
the retailer is engaged in the business of selling in the jurisdiction where
the property is located at the time of the sale with respect to the sale;
or
B) the customer takes possession
of the tangible personal property at a place of business owned or leased by the
retailer in the State, in which case the retailer is engaged in the business of
selling in the jurisdiction where the customer takes possession of the property
with respect to that sale.
4) Leases with an Option to Purchase. A lease
with a dollar or other nominal option to purchase is considered to be a
conditional sale subject to retailers' occupation tax. (See 86 Ill. Adm. Code
130.2010(a)).
On and after July 23, 2015,
a retailer selling tangible personal
property to a nominal lessee or bailee pursuant to a lease with a dollar or
other nominal option to purchase is engaged in the business of selling at the
location where the property is first delivered to the lessee or bailee for its
intended use. [35 ILCS
120/2-12(5)] . This provision applies
to all retailers, including, on and after January 1, 2021, remote retailers and
retailers making sales over a marketplace that meets either of the tax
remittance thresholds established at 86 Ill. Adm. Code
131.135(a). The
retailer must maintain books and records that document the physical location to
which the property is first delivered to the lessee or bailee for its intended
use. An executed contract between the retailer and lessee that clearly
specifies the location of the property creates a rebuttable presumption that
such location is where the property is first delivered to the lessee for its
intended use. The Department may rebut this presumption with clear and
convincing evidence that such location is not the location where the property
is first delivered to the lessee for its intended use. Absent such a contract,
the lessee must provide the retailer with a certification at the time of sale
that declares the location where the product is first delivered for its
intended use. The retailer must maintain this certification in its books and
records and may presume this certification is valid.
Example: A retailer sells equipment to a nominal lessee or
bailee pursuant to a lease with a dollar option to purchase. The equipment is
first delivered to the lessee's Springfield, Illinois warehouse to be
inspected. The property is then delivered to the lessee's headquarters in
Chicago, Illinois to be used in the lessee's business. For purposes of this
sale, the retailer is engaged in the business of selling in Chicago, Illinois,
since that is the location where the property is first delivered for its
intended use.
5) Sales of
Coal or Other Minerals. A retail sale by a producer of coal or other mineral
mined in Illinois is a sale at retail in the jurisdiction where the coal or
other mineral mined in Illinois is extracted from the earth. For purposes of
this subsection (d)(5), "extracted from the earth" means the location at which
the coal or other mineral is extracted from the mouth of the mine. On and after
January 1, 2021, this provision applies to retailers, including marketplace
sellers and marketplace facilitators.
A) A
retail sale is a sale to a user, such as a railroad, public utility or other
industrial company, for use. "Mineral" includes not only coal, but also oil,
sand, stone taken from a quarry, gravel and any other thing commonly regarded
as a mineral and extracted from the earth.
B) A mineral produced in Illinois, but
shipped out of Illinois by the seller for use outside Illinois, will generally
be tax exempt under the Commerce Clause of the Federal Constitution (i.e., as a
sale in interstate commerce). This exemption does not extend, however, to sales
to carriers, other than common carries by rail or motor, for their own use
outside Illinois if the purchasing carrier takes delivery of the property in
the jurisdiction and transports it over its own line to an out-of-state
destination.
C) A sale by mineral
producer to a wholesaler or retailer for resale would not be a retail sale by
the producer and so would not be taxable. The taxable sale (the retail sale) is
the final sale to the user, and local retailers' occupation tax on that sale
will go to the jurisdiction where the retailer is engaged in the business of
selling, as provided in this subsection (d)(5).
e) Sales to Illinois purchasers by remote
retailers. Beginning January 1, 2021, remote retailers, as defined in
Section 2 of the Retailers' Occupation Tax Act, that meet either of the tax
remittance thresholds set out at 86 Ill. Adm. Code
131.115(a), are
engaged in the business of selling at the Illinois location to which the
tangible personal property is shipped or delivered or at which possession is
taken by the purchaser ("destination sourcing").
[35 ILCS
120/2-12(6)] . A retailer is not
considered a remote retailer if it maintains inventory in Illinois or has any
other type of physical presence in Illinois. However, a remote retailer's
inventory at the location of a marketplace facilitator in Illinois does not
create physical presence nexus when used exclusively to fulfill orders made
over the marketplace that meets a tax remittance threshold under Section
131.135(a). See
86 Ill. Adm. Code 131.105.
f) Sales made to Illinois purchasers by
marketplace facilitators on behalf of marketplace sellers. Beginning
January 1, 2021, marketplace facilitators, as defined in Section 2 of the
Retailers' Occupation Tax Act, that meet either of the tax remittance
thresholds established at 86 Ill. Adm. Code
131.135(a), are
engaged in the business of selling at the location to which the tangible
personal property is shipped or delivered or at which possession is taken by
the purchaser for sales made over the marketplace on behalf of marketplace
sellers ("destination sourcing"). [35 ILCS
120/2-12(7)] . This is the case
notwithstanding the presence of a marketplace seller's inventory in Illinois.
This subsection (f) is subject to the exception for sales of coal and other
minerals set out in subsection (d)(5).
g) Sales made by marketplace facilitators to
Illinois purchasers not on behalf of marketplace sellers. When a marketplace
facilitator makes a sale of its own to Illinois purchasers, or the marketplace
seller of the tangible personal property is not identified (see 86 Ill. Adm.
Code 131.130(b)), it
may incur either destination sourcing or sourcing determined under the
provisions of subsection (c) of this Section ("origin sourcing").
1) When a marketplace facilitator located in
Illinois makes its own sale to an Illinois purchaser that is fulfilled from
inventory located in Illinois or for which selling activities otherwise occur
at a location in Illinois as provided in this Section, it is engaged in the
business of selling at the Illinois location at which the inventory is located
or at which the selling activities otherwise occur ("origin sourcing"), as
determined by applying the provisions of subsection (c) of this
Section.
2) When a marketplace
facilitator makes its own sale to an Illinois purchaser that is fulfilled from
inventory located outside Illinois and for which selling activities otherwise
do not occur at a location in Illinois as provided in this Section, it is
engaged in the business of selling at the Illinois location to which the
tangible personal property is shipped or delivered or at which possession is
taken by the purchaser ("destination sourcing").
h) The requirements of this Section also
apply to the following Retailers' Occupation Taxes:
1) 86 Ill. Adm. Code 220 (Home Rule County
Retailers' Occupation Tax);
2) 86
Ill. Adm. Code 320 (Regional Transportation Authority Retailers' Occupation
Tax);
3) 86 Ill. Adm. Code 370
(Metro East Mass Transit District Retailers' Occupation Tax);
4) 86 Ill. Adm. Code 395 (Metro-East Park and
Recreation District Retailers' Occupation Tax);
5) 86 Ill. Adm. Code 630 (County Water
Commission Retailers' Occupation Tax);
6) 86 Ill. Adm. Code 670 (Special County
Retailers' Occupation Tax for Public Safety);
7) 86 Ill. Adm. Code 690 (Salem Civic Center
Retailers' Occupation Tax);
8) 86
Ill. Adm. Code 693 (Non-Home Rule Municipal Retailers' Occupation
Tax);
9) 86 Ill. Adm. Code 695
(County Motor Fuel Tax); and
10) 86
Ill. Adm. Code 696 (Municipal Motor Fuel Tax).
