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Hartney Decision Regarding Sales Tax Sourcing Regulations/Emergency and Proposed Rules

 
 

In Hartney Fuel Oil Company v. Hamer, 2013 IL 115130 (November 21, 2013), the Illinois Supreme Court resolved a longstanding controversy over the meaning of Illinois’ local Retailers’ Occupation Tax Acts. The Court concluded that a seller incurs retailers’ occupation taxes in the local jurisdiction where its predominant selling activities occur, even if it also engages in very limited activities in other places.

The decision in Hartney will have no impact on the overwhelming majority of Illinois retailers because most retailers are engaged in traditional over-the-counter sales, and these retailers consistently have collected and paid local sales tax for the jurisdiction where their sales take place; that is, the place where goods and money are exchanged. This traditional method of doing business and collecting taxes is entirely consistent with the Supreme Court’s decision in Hartney.

Before the decision in Hartney, however, a number of retailers with selling activities in multiple jurisdictions sought to collect and pay local retailers’ occupation taxes only in the low tax rate jurisdictions where they arranged for final acceptance of purchase orders, even when their predominant selling activities occurred in other places. In Hartney, the Supreme Court rejected this practice as contrary to Illinois law. Businesses engaged in this practice should revise their procedures for reporting local retailer occupation taxes to comply with the Court’s decision in Hartney. In determining whether enforcement action is warranted against a retailer for failure to collect and pay the correct local retailers’ occupation taxes going forward, the Department will consider whether the taxpayer has made a reasonable, prompt, good faith effort to comply with the Court’s decision.

Update (06/25/2014): Final Sourcing Rules Submitted to Secretary of State for publication in Illinois Register.

List of Final Rules:

Update (06/09/2014): Department of Revenue Response to JCAR Recommendations on the Emergency Rulemakings.

Update (06/06/2014): JCAR has issued a notice stating that the Second Notice comment period ends no later than July 12, 2014 and that a hearing on the rules will be held on June 17, 2014.

Update (05/30/2014): Proposed Rulemaking Second Notice Filing:

List of Rules Submitted for Second Notice (May 29, 2014):

(Please see the Proposed Rules area for information on the current status of the following.)

Update (05/29/2014): Report of oral comments to the Department regarding proposed rulemaking

Update (05/07/2014): The Department of Revenue held a public hearing on its proposed rules about local sales tax sourcing on Friday, March 21, 2014.

A video of the hearing is now available.

Written comments and testimony related to the proposed rules are below.

Update (05/02/2014): Report of oral comments to the Department regarding proposed rulemaking

Update (04/08/2014): Meeting minutes showing Department of Revenue emergency sourcing rules testimony before the Joint Committee on Administrative Rules.

Update (03/10/2014): Due to an inadvertent error, the proposed rules related to local sales tax sourcing are being withdrawn and new rules are being proposed. The Department filed the new proposed rules (as well as a Notice of Withdrawal for the current proposed rules) on March 10, 2014 with the Secretary of State. These items are expected to be published in the Illinois Register on Friday, March 21, 2014. The previously scheduled public hearing will be held on March 21, 2014 as originally announced. Please note that this does not affect the emergency regulations, which will continue until expiration of the 150-day period.

The new proposed rules differ in one important respect from the current emergency rules. The new proposed rules do not contain the subsection entitled “Long Term or Blanket Contracts,” which is currently found in the emergency rules. In other respects, the new proposed rules are substantively identical to the emergency rules.

Update (01/22/2014): Today IDOR filed both emergency and proposed rules in response to the Supreme Court’s decision in Hartney and to provide additional guidance to taxpayers in ascertaining their local retailers’ occupation tax liabilities. Please note that Title 86 of the Illinois Administrative Code, which is reserved for Department regulations, currently contains 10 separate parts that implement different local taxes. These parts include:

  • Part 220 - Home Rule County Retailers' Occupation Tax
  • Part 270 - Home Rule Municipal Retailers’ Occupation Tax
  • Part 320 - Regional Transportation Authority Retailers’ Occupation Tax
  • Part 370 - Metro East Mass Transit District Retailers’ Occupation Tax
  • Part 395 - Metro East Park and Recreation District Retailers’ Occupation Tax
  • Part 630 - County Water Commission Retailers’ Occupation Tax
  • Part 670 - Special County Retailers’ Occupation Tax For Public Safety
  • Part 690 - Salem Civic Center Retailers’ Occupation Tax
  • Part 693 - Non-Home Rule Municipal Retailers' Occupation Tax
  • Part 695 - County Motor Fuel Tax

It has been necessary to amend each of these parts to reflect the Hartney decision. The substantive provisions of all the emergency rules are identical to each other; similarly, the substantive provisions of all the proposed rules are identical to each other. However, there are minor differences between each part. These differences are due to the unique nature of each tax affected, the structure of the existing rules in that part and different statutory citations for each tax. Please note that the only substantive difference between each emergency rule and its proposed counterpart is that the proposed rule does not contain the subsection entitled “Long Term or Blanket Contracts” found in the emergency rule.

We look forward to working with all interested parties throughout the rulemaking process.

Letter to JCAR

Press Release

List of emergency rules:

List of proposed rules:

(Please see the Proposed Rules area for information on the current status of the following.)

Update (01/07/2014): The Illinois Department of Revenue, in an effort to gather input from all interested parties, held a public hearing on Thursday, December 12, 2013. Below are the written comments from that hearing.

 
 
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