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Illinois Sales and Use Taxes (Portfolio 2110)

Product Code: TPOR44
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Illinois Sales and Use Taxes discusses a wide range of issues dealing with the four components of the Illinois sales and use taxes: the Retailers' Occupation Tax (ROT), the Use Tax (UT), the Service Occupation Tax (SOT), and the Service Use Tax (SUT). Written by a team of lawyers from the law firm of Horwood, Marcus & Berk, Chtd., including Jordan M. Goodman, Esq., Fred O. Marcus, Esq., Marilyn A. Wethekam, Esq., and David A. Hughes, Esq., this Portfolio provides a detailed discussion of the similarities and differences between the four taxes. Each tax is described in detail with an analysis on the imposition of the tax, taxable transactions, who or what is taxed, and the measure of the tax. For the use taxes, collection issues are also examined. 

In addition, this Portfolio reviews the local sales and use taxes, which generally piggyback on the state level tax.  It discusses taxation issues affecting specific industries such as printers and graphic artists, construction contractors and real estate developers, and lessors.  

The authors also consider the various exemptions from taxation, which are applicable to potential taxpayers, including: 

  • Isolated or occasional sale exemption and Bulk sales notification and sale of a business,
  • , including for interstate commerce, rolling stock, nonresidents, tax already paid in another state, and temporary storage, and
  • Sales to government entities; charitable, religious, or education organizations; members; county fair associations; churches; and nonprofit arts or cultural organizations. 

Finally, Illinois Sales and Use Taxes analyzes constitutional aspects of nexus and jurisdiction.  It concludes with the administration of sales and use taxes as well as taxpayer remedies.

Illinois Sales and Use Taxes allows you to benefit from: 

  • Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area.
  • Invaluable practice documents including tables, charts and lists.
  • Plain-English guidance from world-class experts.
  • Real-world and in-depth analysis that lets you explore various options.
  • Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
  • Alternative approaches to both common and unique tax scenarios.

This Portfolio is part of the Premier State Tax Library, a comprehensive series, which covers major state tax transactions and issues with expert, in-depth analysis, and offers commentary on a wide range of multi-state and state-specific taxation topics, including Sales and Use, Corporate Income, Individual Income, Property, Gross Receipts, Limitations on States' Authorities to Tax, Credits and Incentives, Electronic Commerce, Mergers and Acquisitions, Procedure and Administration, Special Industries, and more.

 

Detailed Analysis

2110.01. NATURE OF SALES AND USE TAX

2110.02. THE RETAILERS' OCCUPATION TAX (ROT)

A. Imposition of the ROT

B. Taxable Transactions; Definition of ROT Terms

1. “Sale at Retail”

a. Transfer of Title or Ownership for Valuable Consideration

b. “Tangible Personal Property” Defined

(1) Canned Software

(2) Discount Coupons and Gift Certificates

c. Sale for Resale

(1) Sales of Containers, Wrapping and Packing Materials and Related Products

(2) Sales to Construction Contractors, Real Estate Developers and Speculative Builders

(3) Hatcheries

(4) Vendors of Tangible Personal Property for Premiums, Advertising and Prizes

d. Leases as Sales

(1) Special Exception for Lessors of Automobiles

e. Sales as Distinguished from Services

2. Person Engaged in the Business of Selling at Retail

C. Who is Taxed?

1. Sellers Generally

2. Sellers of Property Originating in Illinois

3. Sales of Property Originating Outside Illinois

4. Illinois Florists' Transactions

D. Measure of Tax

1. Gross Receipts

a. Transportation and Delivery Charges

b. Installation Charges

c. Prepayments or Deposits

d. Penalties

e. Trading Stamps

f. Miscellaneous

(1) Photoprocessing

(2) Computer Software

2. Exclusions from Gross Receipts

a. Cash Discounts, Discount Coupons, and Prompt Payment Discounts

b. Taxes

(1) Federal Taxes

(2) Other State and Local Taxes

(a) Illinois Motor Fuel Tax and Cigarette Tax

(b) Illinois and Cook County Liquor Gallonage Taxes

(c) Finance and Interest Charges

(d) Returned Merchandise

(e) Bad Debts

(f) Gratuities and Tips

(g) Traded–In Property of “Like Kind and Character”

2110.03. THE USE TAX (UT)

A. Imposition of the UT

B. Taxable Transactions

1. “Retailer” Defined

2. “Use” Defined

a. Exclusions from “Use”

(1) Demonstration Exemption

(2) Interim Use Exemption

(3) Ingredients and Constituents

3. Property for Use in Illinois

a. Property Acquired by Nonresidents

b. Property Used by Interstate Carriers For–Hire (Rolling Stock Exemption)

c. Property Already Taxed in Another State

d. Property in Temporary Storage in Illinois

e. Property in Interstate Commerce Transported Out of Illinois

f. Motor Vehicles Sold to Nonresidents

C. Who is Taxed?

D. Collection of the UT

1. Retailers Maintaining a Place of Business in Illinois

E. Measure of Tax

1. Rate of Tax

a. Special Provisions for Gasohol

b. Special Provisions for Food for Human Consumption and Medical Appliances

c. Reasonable Allowance for Depreciation for Motor Vehicles

2110.04. THE SERVICE OCCUPATION TAX (SOT)

A. Imposition of SOT

1. “Serviceman” Defined

B. What is Taxed?

1. “Sale of Service” Defined

2. Exception for Maintenance Agreements

C. Who is Taxed?

D. Measure of Tax

1. Determining Selling Price

2. Sales Not Subject to Tax

a. Determining the 35% Threshold

2110.05. SERVICE USE TAX (SUT)

A. Imposition of SUT

B. What is Taxed?

C. Who is Taxed?

D. Collection

2110.06. LOCAL SALES AND USE TAXES

Introductory Material

A. Units of Local Governments Authorized to Impose Sales and Use Taxes

1. Home Rule Municipal and County Taxes

2. Non–Home Rule Municipal Taxes

3. Non–Home Rule County Taxes

B. Special Districts Authorized to Impose Sales and Use Taxes

1. Regional Transportation Authority ROTs and SOTs

2. Metropolitan Pier and Exposition Tax

3. Soft Drink Tax

2110.07. SALES AND USE TAXATION OF SPECIFIC INDUSTRIES

A. Printers and Graphic Artists

B. Construction Contractors and Real Estate Developers

1. “Construction Contractor” Defined

2. “Real Estate Developer” Defined

3. Imposition of the UT on Out–of–State Purchases

4. Exemptions for Construction Contractors

a. Sales of Building Materials to Construction Contractors Acting for Churches, Schools or Governmental Bodies

b. Sales of Materials to Construction Contractors for Incorporation into Public Improvements

C. Lessors

1. Exceptions

a. Automobile Renting Occupation and Use Tax

b. Hotel Operators' Occupation Tax

2. Lease vs. Conditional Sale

3. Sales of Rental Property

4. Leases to Charitable, Religious and Educational Institutions

2110.08. EXEMPTIONS

A. Occasional Sales and Bulk Sales Notification

1. Isolated or Occasional Sale Exemption

2. Bulk Sales Notification and Sale of a Business

B. Multistate Exemptions

1. Interstate Commerce

2. Rolling Stock

3. Nonresidents

4. Credit for Tax Already Paid in Another State

5. Temporary Storage

C. Sales to Government Entities

D. Nonprofit Organizations

1. Sales to Charitable, Religious or Educational Organizations

2. Sales by Nonprofit Service Enterprises

a. Sales to Members

b. Noncompetitive Sales

c. Occasional Dinners and Similar Activities

d. Rules Governing Special Kinds of Selling by Exclusively Charitable Organizations

(1) Hospital Sales

(2) Gift Shops and Rummage Stores

(3) Meals

(4) Special Problems Regarding Sales by Schools

e. Suppliers of Not–for–Profit Institutions, Associations and Organizations

3. Teacher–Sponsored Student Organizations

4. Sales to County Fair Associations

5. Live Public Performances of Music or Theatre

6. Sales to Churches, Charities or Schools and Organizations for the Benefit of Persons 65 or Older

7. Sales to Nonprofit Arts Or Cultural Organizations

E. Resale Exemption

1. Sales for Resale

2. Ingredients or Constituents

3. Demonstration and Interim Use

a. Demonstration Use

b. Interim Use

F. Commercial, Industrial, Mining and Manufacturing Exemptions

1. Manufacturing Machinery and Equipment Exemption

a. Machinery and Equipment

b. “Primary Use” Defined

c. Use of Finished Product

d. Lessors of Machinery and Equipment

2. Manufacturer's Purchase Credit

3. Graphic Arts Machinery and Equipment

4. Photoprocessing Equipment

5. Enterprise Zones

a. Building Materials Purchased for Physical Incorporation into Real Estate Located in an Enterprise Zone

b. Tangible Personal Property Purchased for Use or Consumption Within an Enterprise Zone in the Process of Manufacturing or Assembling, or Graphic Arts Production

c. Machinery and Equipment Used to Operate a High-Impact Service Facility Located in an Enterprise Zone

d. Exemption Certification

e. Aircraft Support Center

G. Mandatory Service Charges

H. Miscellaneous

2110.09. NEXUS AND JURISDICTION TO TAX

A. Definitions of Nexus and Jurisdiction

1. Nexus

B. Constitutional Basis of Nexus

1. The Due Process Clause

2. The Commerce Clause

C. The Quill Decision

1. Facts of Quill

2. Due Process Analysis

3. The Commerce Clause

D. The Brown's Furniture Decision

1. Substantial Nexus

2. Fairly Apportioned

3. Does Not Discriminate Against Interstate Commerce

4. Fair Relation to Services Provided by the State

2110.10. ADMINISTRATION OF SALES AND USE TAXES

A. Obtaining a Certificate of Registration

B. Direct-Payment Program

C. Returns

D. Extensions and Refunds

E. Statute of Limitations

F. Penalties

1. Failure to Pay Penalty

2. Failure to File Penalty

3. Collection Penalty

4. Amnesty-Related Penalty

5. Reasonable Cause

6. Liability of Corporate Officers and Employees

G. Interest

2110.11. AUDITS AND TAXPAYER REMEDIES

Introductory Material

A. Three Alternatives for the Taxpayer

1. Protest to Notice of Tax Liability

2. Claim for Refund

3. Suit for Refund

4. Factors to Consider in Selecting a Forum

B. Board of Appeals Hearings

C. Taxpayer's Bill of Rights

Working Papers

Item Description Sheet

Worksheet 1 Illinois Taxpayers' Bill of Rights Act (20 ILCS 2520/)

Worksheet 2 Multiple Site Form ST–2

Worksheet 3 Certificate of Resale Form CRT–61

Worksheet 4 Business Registration Application REG-1

Worksheet 5 [Reserved]

Worksheet 6 Notice of Sale or Purchase of Business Assets Form CBS-1

Worksheet 7 Equipment Exemption Certificate Form ST-587

Worksheet 8 Manufacturer's Purchase Credit Certificate Form ST–16–C

Bibliography

Bibliography

Brian Browdy
Mr. Browdy practices state and local tax with his primary focus on the resolution of state and local tax disputes and tax planning for multistate and multinational corporations. He received his B.A. degree from Northwestern University and his law degree from DePaul University. He is admitted to practice in Illinois.
Jordan Goodman
Mr. Goodman is a partner in the Chicago law firm of Horwood, Marcus & Berk, Chartered, where he concentrates his practice on state and local tax planning and the resolution of state and local tax disputes for multistate and multinational corporations. He advises businesses in various industries on the tax ramifications and benefits of organizational structures and has lectured on state and local taxation before business and professional associations. Mr. Goodman is co–author of the chapter entitled Illinois Income Tax Considerationsfor the Illinois Institute of Continuing Legal Education publication Organizing and Advising Illinois Businesses and the chapter entitled Illinois Sales and Use Tax in the American Bar Association's Sales and Use Tax Handbook. He received his B.S. in accounting with high honors from Indiana University and his J.D. from the University of Illinois. Mr. Goodman is also a Certified Public Accountant.
David Hughes
David Hughes is an associate at Horwood, Marcus & Berk, Chartered, where he practices state and local tax with special emphasis on income and sales/use tax matters. His work focuses primarily on the resolution of state and local tax disputes and tax planning for multistate and multinational corporations. Mr. Hughes is co–author of the chapter entitled Illinois Sales and Use Tax in the American Bar Association's Sales and Use Tax Handbook. He graduated magna cum laude with a degree in English from the University of Notre Dame and received his law degree from Columbia University.
Fred O. Marcus
Mr. Marcus is a partner in Horwood, Marcus & Berk, Chartered, where as chairman of the firm's state and local tax practice group, he concentrates on state tax planning and the resolution of state and local tax disputes on a nationwide basis for multistate and multinational corporations. He received his B.S. in accounting in 1970 from the University of Illinois and his J.D. in 1974 from the DePaul University College of Law. Mr. Marcus has served as a faculty member for programs sponsored by the Tax Executive Institute, the Committee On State Taxation, and the National Institute on State and Local Taxation. He has also written numerous articles on state taxation. He is currently a member of the Illinois Department of Revenue's Practitioner Liaison Group; the American Bar Association's Section of Taxation's State and Local Tax Committee, and the Advisory Council of the National Institute on State and Local Taxation.
Marilyn Wethekam