Illinois Court Finds Wal-Mart Correctly Charged Sales Tax on Shipping Charges

The Bloomberg BNA Tax Management Weekly State Tax Report filters through current state developments and analyzes those critical to multistate tax planning.

by J.P. Finet

In a decision involving a class action lawsuit, the Illinois Supreme Court found that Wal-Mart Stores Inc. correctly imposed sales tax on the cost of shipping items purchased through its website because the purchase included the price of delivery. [Kean v. Wal-Mart Stores Inc., Ill., No. 107771, 11/19/09]

The court held that the shipping charge was part of the selling price of goods sold online because purchasing and shipping were inseparably linked. The court thus affirmed the judgment of the appellate court, which affirmed dismissal of the complaints by the trial court.

Nancy Kean filed a “putative multistate class action” lawsuit against Wal-Mart and several of its subsidiaries, arguing that Wal-Mart's imposition of sales tax on shipping charges was without statutory authority. Kean claimed that in September 2006 she purchased a trampoline through Wal-Mart's internet store for $23.33 and was overcharged $0.697 in sales tax imposed on the $7.97 shipping charges.

Based on her claims that the tax was improperly imposed on her shipping charges, Kean contended that Wal-Mart violated the Illinois Consumer Fraud and Deceptive Business Practices Act. She sought actual damages on behalf of herself and a class consisting of all consumers who purchased items from Wal-Mart and were charged sales tax on the shipping of that item.

Shipping and Purchase Linked

The supreme court found that the selling price of the trampoline includes shipping charges because there was no separate agreement for shipping. Keen could not purchase the trampoline without choosing a shipping option, the court said, and thus, the sale could not be completed absent a payment for shipping.
The court rejected the plaintiffs' arguments that because they could have purchased the same items at a brick and mortar Wal-Mart or another retailer without incurring shipping charges, the charges are not inseparably linked to the sale of the goods.

“The transactions at issue here, as alleged in plaintiffs' complaints, consist of purchases from Wal-Mart's internet store,” the court said. “We are not concerned with other hypothetical transactions. Thus, whether plaintiffs could have purchased the same items elsewhere without a delivery or shipping charge, or whether Wal-Mart could have set up its internet store differently, is irrelevant to the question before us, namely, whether plaintiffs could have purchased the items from Wal-Mart's internet store without also buying delivery. The answer to that question is ‘no.' ”

Full text of the decision may be viewed at