Illinois – Out-of-State Retailer Maintained Business in Illinois

2/06/2013

SALT Report 2126 – The Illinois Department of Revenue issued a use tax assessment against an out-of-state Taxpayer who they determined  was “a retailer maintaining a place of business in Illinois” and was required to collect use tax. In 2011, the Department conducted an audit of the Taxpayer and determined that he owed more than $8,000 in use tax.  After the audit was completed, the Department issued a final assessment in the amount of $12,500. The Taxpayer appealed the assessment claiming that he did not have sufficient contact with Illinois to require him to collect and remit Illinois use tax.

In response, the auditor noted that the Taxpayer had sales representatives that regularly appeared at trade shows in Illinois.  The representatives presented and took orders for products that the Taxpayer manufactured. The auditor reasoned that these representatives created a clear presence in the state.  The Taxpayer argued that these were independent contractors, not agents, who worked on consignment and were not limited to selling only the Taxpayer’s products.

Upon review of the case, the Department referred to Illinois Use Tax regulation § 150.801 which clarifies that for a retailer to be considered maintaining a place of business in Illinois, it  is not necessary for the retailer to have an office, distribution house, sales house, warehouse or other place of business in the state.  Rather, it is enough for the retailer to have “an agent or other representative operating within the State under the authority of the retailer or its subsidiary, irrespective of whether such place of business or agent or other representative is located here permanently or temporarily…”

Because of this, the Department determined that the Taxpayer did in fact have sales representatives working on his behalf, at trade shows in Illinois, which subjected him to the use tax provisions. Additionally, it was determined that because the Taxpayer had failed to file a use tax return the statute of limitations was six years rather than three.  Therefore, the notice of tax liability issued by the Department was valid because it was issued within six years of the date the Taxpayer’s liabilities were incurred. As a result, the Department ruled that the tax assessment be upheld along with applicable interest and penalties.

For Further Information

Illinois Department of Revenue – Administrative Hearing Decision Number UT 13-01