Business tax strategy denied by Illinois Supreme Court

Businesses in our state used to be able to take advantage of a tax loophole that allowed them to shift their "point of purchase" outside of Chicago to a more state sales tax friendly area downstate. The Illinois Supreme Court recently ruled that this business tax strategy could no longer be used. Fortunately, the court also said the ruling would not be retroactive.

Companies that employed this strategy in the past will not have to pay penalties or additional tax. The Regional Transportation Authority (RTA) estimates that Chicago and Cook County lost millions of dollars in tax money over the years while companies such as airlines, oil companies and catalog houses employed this practice just in the last 10 years. Sales tax revenue comprises nearly half of the annual budget of the RTA, so it was pleased with the court's ruling.

Chicago's sales tax is one of the highest in the nation, and the law provides that where the purchase is made -- and not where the product is delivered --determines the sales tax. Therefore, companies traditionally could make their purchases in an office in another area of the state and accept delivery in Chicago. A company claiming this was legal initiated the lawsuit that eventually ended up before the state Supreme Court.

Even though the court found that the company's actions did not violate Department of Revenue regulations at the time, it also determined that they were not consistent with state law. Due to this ruling, there may be many companies in the Chicago area that will need to reassess how and where they make their purchases and have goods delivered. Undoubtedly, there may be a measure of confusion. Staying abreast of the latest court decisions and changes in the business tax law will help companies avoid any inadvertent violations.,

Source: Chicago Tribune, Illinois Supreme Court moves to close tax loopholes, Ameet Sachdev, Nov. 21, 2013

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