Illinois Closes Sales Tax Loophole

If you’re selling products to a business in Illinois, you need to change your sales tax practices to updated rules concerning tax jurisdictions—it’s not where the purchase is accepted that matters but rather where the delivery occurs. The historic case decided in the Illinois Supreme Court before Thanksgiving changes the way Illinois businesses will be handling sales tax, including how to bill customers. The case, involving jet fuel supplier Hartney Fuel Oil Co., ruled to toss some Department of Revenue rules that allow companies to use drop locations in exurban areas for lower sales tax rates.

You can read the full opinion for all the details. As a business, you need to now pay attention to where you are receiving shipments and where you’re sending them to customers. If they’re not following the rules, there is the possibility that you might be penalized with the uncollected sales tax. Hartney is said to owe $23 million in back taxes, though the amount could be higher. Businesses can’t use “dummy” offices to sign off on shipments or rent a space just for packages and a phone—the ruling states that where the business does the bulk of business is the location where sales tax must be paid. Since this has been a common practice for large businesses in the Chicago area for decades, it’s a big change to which you need to pay attention.

Be sure to check with all of your customers in the Illinois area if they have any changes to their sales tax information. If they don’t understand why you’re asking, it is a good idea to ask them where the bulk of business occurs in Illinois for their company. When it’s something different than you’ve been using, you might need to change it. Part of the problem is this puts suppliers in a difficult position with longtime customers who are using “dummy offices.” If businesses don’t execute their end-of-sales tax collections correctly, they might be deemed at fault. However, it’s really difficult to know what to do in this scenario. The best advice is to keep your business’s best interests in mind when it comes to keeping customers and keeping out of legal trouble.

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