Illinois Administrative Code › Title 86 - REVENUE › Part 270 - HOME RULE MUNICIPAL RETAILERS' OCCUPATION TAX › Section 270.115 - Jurisdictional Questions

Current through Register Vol. 48, No. 28, July 12, 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				incorporated towns, including an incorporated town that has superseded a civil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.