Where Is a Retail Seller Liable For Occupation Taxes?

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At least three different government entities are allowed by Illinois law to impose the local portion of the state's sales taxes: home rule counties; home rule municipalities; and regional transit authorities. But what happens when a business' operations span multiple counties -- where does the sale take place for tax purposes? This question can make a difference in the many millions of dollars when a particular business has operations in both high- and low-tax counties. The Illinois Supreme Court will resolve the issue in Hartney Fuel Oil Co. v. Hamer, which it agreed to hear in the final days of its January term.

The plaintiff in Hartney resells fuel oil to railroads, trucking companies, gas stations and other fuel distributors. In 1995, the plaintiff moved its sales operation out of its corporate headquarters in Forest View (which is in Cook County). By 2003, the sales operation had landed in Mark (which is in Putnam County). The corporate headquarters remained in Forest View until 2008, when the corporate and accounting staff was also moved to Mark.

The plaintiff had two kinds of sales during the relevant period. First, there were daily purchase orders. The customer was informed by fax or email of the next day's price, and responded to the sales office: what it needed, how much, where and when. The sales agent in Mark accepted the order and made the arrangements. Second, there were long-term purchase orders. A fully executed contract was mailed from the Mark sales office to the customer. Originals were stored in Mark, with copies to the customer as well as the plaintiff's accounting department in Forest View.

Once the Mark sales office opened in August 2003, the plaintiff reported that all sales happened in Mark. The Department of Revenue audited the plaintiff for the period of 2005 through mid-2007; the auditors ultimately concluded that all sales occurred in Forest View -- in Cook County -- rather than Mark, and the plaintiff got a $23.1 million tax bill. The plaintiff paid under protest and sued.  The board of commissioners of Putnam County and board of trustees from Mark got into the act too, suing the Department on the grounds that they were entitled to the local share of the sales taxes. The Circuit Court found for the plaintiffs, concluding by preponderance of the evidence that both daily and long-term orders were accepted in Mark, not Forest View.

Despite the lengthy lead-in, the issue in Hartney is ultimately fairly simple: is the location of the sale determined by the totality of the circumstances, or does the sale occur where the order is accepted? The Third District affirmed the Circuit Court, adopting what it described as a "bright-line test": where acceptance of the order occurs, sales tax liability is fixed. In doing so, the Court refused to follow a twenty-four year old case from the Fourth District, Chemed Corp. v. State, which had adopted the totality of the circumstances test. The majority then turned to the trial court's factual findings, holding that the Circuit Court's conclusion that all sales occurred in Mark was not contrary to the manifest weight of the evidence. Justice Robert L. Carter dissented from the panel's holding, concluding that the state regulations imposed a totality of the circumstances test for determining where a particular sale took place for tax purposes.

Hartney should be decided in late 2013.