The following excerpt is from Maria Koklanaris’ article, “PetMeds Suit Could Upend Ill. Remote Seller Sourcing Regime,” published by Law360 on January 26, 2024. Read the full article on Law360's website (subscription required).
Online pet pharmacy PetMeds has filed a petition before the Illinois tax tribunal, claiming that a state law, known as Leveling the Playing Field, is unconstitutional. The law requires remote retailers to use a destination sourcing method, in which sales are taxed at the location or locations where the buyers receive them. However, in-state retailers may use an origin sourcing method, in which sales are taxed where the seller is located.
PetMeds argues that this law is discriminatory against remote sellers as they end up collecting and remitting higher taxes compared to in-state sellers. The lawsuit cites legal precedents, such as the Associated Industries v. Lohman case and the South Dakota v. Wayfair decision, to support its claims.
Jordan M. Goodman, State and Local Tax Partner, discussed the case with Law360. He noted South Dakota's sales tax regime passed muster with the justices, according to the opinion from former Justice Anthony Kennedy, in part because it was deemed relatively easy to comply with. South Dakota adheres to the Streamlined Sales and Use Tax Agreement, a compliance simplification agreement among about half of the states. Illinois does not. Jordan said that is illustrated by a two-page flow chart the state offers to sellers who are trying to figure out whether and how they need to comply.
"Looking at that chart and the burden it makes on remote sellers that is not imposed on domestic Illinois-based sellers is ridiculous," Jordan said.
He further added that he does not accept the argument that a company can easily take care of compliance by purchasing appropriate software.
"That's a pretty big assumption," Jordan said. "But this is the broader question: How much complexity is too much? This is the fairness question, maybe even a due process question. Is it fair to impose this burden on remote sellers when in-state sellers are not subjected to the same level of complexity?"