State and Local Tax Quarterly Update

I. Will Physical Presence Remain The Determinative Factor Or Will Quill Be Overturned?

Since 1992, the states have operated based upon the reasoning of Quill Corporation v. North Dakota, 504 U.S. 298 (1992) which established that a state could not require a retailer to collect sales tax unless the retailer had a “physical presence” within the state. 

Taxpayers have at least had this guidance when dealing with the uncertain area of state and local taxation. 

In 2016, South Dakota passed a statute which requires certain out of state corporations to collect sales tax on products sold to South Dakota customers based upon a certain threshold of sales into the state, irrespective of actual presence. 

Lower courts held in favor of taxpayers based upon the reasoning of Quill, leading to the United States Supreme Court agreeing to hear the matter of South Dakota v. Wayfair.  The future ruling by the Supreme Court could maintain the status quo or change altogether what presence is sufficient to subject taxpayers to a taxing jurisdiction. 

This case could have far reaching implications as whatever the decision, the Court will be providing either explicit or implicit guidance as to how “economic nexus” is viewed by the Court.  “Economic nexus” deals with connections based upon economic activity, and not simply based upon “physical presence.” 

II.  Illinois Supreme Court Provides Guidance With Regards To Classification Of A Retailer Under The Retailers’ Occupation Tax Act (“ROTA”).

Citibank N.A. claimed a refund of approximately $1.6 million in sales tax resulting from bad credit card debt for accounts financed by the bank.  On November 30, 2017, the Illinois Supreme Court ruled unanimously that it was not a “retailer” under Section 6 of the ROTA and thus not entitled to a refund.  For further information, see Citibank, N.A. v. Ill. Department of Revenue, No. 121634 (11/30/17).

III.  Compressed Natural Gas not subject to the Motor Fuel Tax Law According to First District, (at least for certain tax periods).

The Illinois Appellate Court, First District, reversed a granting of summary judgment by the Illinois Independent Tax Tribunal that determined the Motor Fuel Tax Law did not impose a tax on compressed natural gas.  The decision hinged upon whether compressed natural gas was included in the definition of a “motor fuel” under 35 ILCS 505/1.1.  For more information, see Waste Management of Ill v. Ill Independent Tax Tribunal, 2017 IL App. (1st) 162830-U (December 29, 2017).  The legislature did take action to amend the statute to deal with compressed natural gas, but the court would not retroactively apply the statute. 


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