By Madison Barnett and Jonathan Feldman
The Illinois Supreme Court held that Illinois’ local Retailers’ Occupation Tax (ROT) sourcing regulations—which applied a bright-line test to assign sales to the location where the purchase order was accepted—were not supported by the controlling tax imposition statutes and thus were invalid. The taxpayer, like many others in Illinois, established a sales acceptance office in a low- or no-tax Illinois municipality, according to the court, to accept orders “for tax planning purposes.” The court first found that the relevant statutory provisions taxed the entire “business of selling” and that the intent of the legislature was that situsing should be based on a “totality of the circumstances” analysis of all sales-related activities. Under the Illinois Department of Revenue’s longstanding regulations, Illinois sales were sitused to the location where the sales were accepted, regardless of the location of the other selling and solicitation activities. Interpreting its own regulations, the Department contended that a “totality of the circumstances” test should apply, but the court found that the regulations actually adopted the bright-line sourcing test advocated by the taxpayer. Because the regulations impermissibly narrowed the statutes’ legislative intent, the court held that the regulations were invalid. However, the Illinois Taxpayer Bill of Rights absolves taxpayers of liability if they have relied on erroneous written information or advice given by the Department, and the invalid regulations qualified as written advice. Thus, the court abated the taxpayer’s $23 million assessment. While it appears that taxpayers with similar facts may be protected from any past liabilities, one may question the continued viability of sales acceptance office planning in Illinois. Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130 (Ill. Nov. 21, 2013).