This blog was last updated on June 27, 2021
IIllinois, as well as Chicago, generally follows origin based sourcing. Illinois Dept. of Rev. General Information Letter ST 00-0020-GIL, 01/26/2000. Until the recent Illinois Supreme Court Hartney decision, which we will discuss below, Illinois law provided that a sale is sourced to the seller’s place of business that:
- Makes a complete and unconditional offer to sell, which is accepted without modification by the buyer so as to create a contract;
- Receives an offer or counteroffer to buy (regardless of where the seller accepts the offer or counteroffer);
- Accepts an offer or counteroffer to buy; or
- Makes final delivery of the property in Illinois to the buyer. Final delivery of the property in Illinois does not include the delivery of property by the seller outside Illinois to an independent carrier for transportation directly to the buyer.
Ill. Admin. Code 86 § 130.610(b). Taxware’s Sales and Use Tax System utilizes a hierarchical approach to source Illinois local sales to the seller’s business location, as outlined above. Taxware defines the place where the seller makes an offer as the Point of Order Acceptance. Next, Taxware defines the receipt or acceptance of an offer or counter offer as the location where the order is Shipped From. Lastly, Taxware considers the place of final delivery to equate to the Ship To location. On November 21, 2013, the Illinois Supreme Court issued a decision in the case of Hartney Fuel Company vs. Hamer, in which the court concluded that a seller incurs retailers’ occupation taxes in the local jurisdiction where its predominant selling activities occur, even if it also engages in very limited activities in other places. On January 22, 2014, the Illinois Department of Revenue filed emergency regulations to provide additional guidance to taxpayers, to reflect the decisions set forth in the Hartney case. The point of order acceptance should no longer be the sole factor in determining the situs for a sale. In order to determine where a sale is ultimately taking place, one should also consider the following “primary” factors, in addition to point of order acceptance:
- Do the location house company executives who have the authority to negotiate on behalf of the company and finalize sales transactions?
- Is this the location where the offers are prepared and made?
- Is this location where purchase orders are accepted or other contracting actions that bind the seller to the sale are completed?
- Is the inventory of the goods to be sold housed in this location?
Additional information regarding the Hartney decisions, as well as all emergency and proposed regulations can be found on the Illinois Department of Revenue website at the following link: http://www.revenue.state.il.us/News/HartneyDecision.htm. While the Hartney decision will not have an impact on Taxware’s Sales and Use Tax System processing rules, sellers will need to apply a greater fact intensive test to their transactions to determine where their definition of the “Point of Order Acceptance” should essentially be located based on these new regulations issued under the Hartney decision. Note that the emergency regulations are effective immediately.
