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Everyone is by now likely familiar with the recent Wayfair decision and its central holding.  Prior to Wayfair, businesses had some degree of comfort that they would not be required to collect and remit sales or use taxes to states in which those businesses did not have physical presence.  Now that the physical presence test is gone, state legislation must be reviewed on a case-by-case basis to determine whether it will survive Commerce Clause scrutiny.  Rather than go over every…

The Commerce Clause and interstate commerce were thrust into the spotlight last week, as the United States Supreme Court reversed the longstanding physical presence standard for sales tax nexus. As states and businesses begin to grapple with the ramifications of the Supreme Court's decision in South Dakota v. Wayfair, Inc., et al,585 U.S. __ (2018), it will be important to assess each state's nexus statutes and regulations in light of Justice Kennedy's opinion. In this article, we will provide the context leading…

My Initial Reactions in Bold. 5 to 4 decision. Not surprising. Alito was the swing vote. "Quill is unsound and incorrect." Stare decisis basically stands for that premise.  You never have to rely upon stare decisis if the prior decision you were relying upon was and is still correct. "Each year, the physical presence rule becomes further removed from economic reality." True, but the rule has been in place for over 50 years and commerce has reasonably relied on it.…

A consent directive is an authorization providing for release of information or documents by a third party located anywhere in the world.  The form does not abrogate Fifth Amendment rights because it does not acknowledge that an account is in existence or is controlled by the party to sign the authorization. The U.S. Supreme Court gave its blessing to consent directives in Doe v. United States, 487 U.S. 201 (1988).  District courts rely on the All Writs Act, 28 U.S.C.…

As we have discussed previously, Illinois localities have adopted a variety of unique taxes, such as the Chicago Personal Property Lease Transaction Tax, the Amusement Tax, and dozens more. But, like many other states, Illinois localities may also impose a local option tax which is imposed in addition to the state Retailers' Occupation Tax ("ROT"). Unlike many other states, however, Illinois localities use a unique sourcing methodology. Whereas sales of tangible personal property to Illinois are subject to a destination-based…

We should have a Wayfair decision by then, but IL adopted a South Dakota remote seller nexus rule effective October 1, 2018. For purposes of the Use Tax Act, the definition of "retailer maintaining a place of business in this state" is amended, and for purposes of the Service Use Tax Act, the definition of "serviceman maintaining a place of business in this state" is amended. Beginning October 1, 2018, such a retailer will include a retailer making sales of…

In calculating the Illinois sales factor, Illinois employs both a "throw-back" and "throwout" rule.  Under the throw-back rule, if a sale of tangible personal property originates in Illinois and the taxpayer is not subject to tax in the destination state, the gross receipts from the sale will be "thrown back" to Illinois and will be included in the numerator of the Illinois sales factor.  Under the throwout rule, if a taxpayer is not subject to tax in the state in…

Illinois' treatment of leases is an anomaly when compared to almost all other jurisdictions.[1] While most jurisdictions impose sales tax on the lease receipts collected from the lessee, the user of the equipment, Illinois differs by treating the lessor as the user of the equipment.  As such, the lessor is subject to Illinois use tax.  86 Ill. Admin. 130.2010; GIL 16-0067 (12/27/2016).  Illinois' unique treatment presents many challenges for lessors.  First and foremost, Illinois' places the imposition of tax on…

Determining whether computer software is taxable is no easy task, especially in light of the changing technological landscape. The Illinois Department of Revenue ("Department") has been asked by taxpayers for a number of years to provide clarification, but until recently has been largely silent on the treatment of sales of computer software. In several non-binding General Information Letters ("GIL") and Private Letter Rulings ("PLR")[1], the Department has recently provided clarification on several key issues, including the taxability of cloud computing.…

In a previous post, we addressed the basics for calculating Illinois base income. Once a taxpayer has calculated its Illinois base income, a corporate taxpayer should use Form IL-1120, Step 4, lines 24 through 34 to calculate its Illinois sourced income. As the instructions show, Illinois has different apportionment formulae for general businesses, insurance companies, financial organizations, federally regulated exchanges, and transportation companies. See also 35 ILCS 5/304(a), (b), (c), (c-1), and (d). We will discuss Illinois' combined reporting rules and…

Alabama, Connecticut and Texas are offering tax amnesty programs that have some huge benefits. Amnesty programs are a great way to resolve nexus issues and underpayment issues. As with most amnesty programs, you must not have been contacted by the respective state's Department of Revenue to be eligible. In Alabama, the amnesty period runs from July 1, 2018 through September 30, 2018. It includes most tax incurred or due prior to January 1, 2017 and includes a full waiver of…

Although businesses entering a new jurisdiction are often primed to handle local sales and use taxes, even sophisticated taxpayers can be unprepared for the myriad of unfamiliar local taxes waiting to greet them when beginning to transact business in Chicago. Whether leasing equipment in the City of Chicago or transferring software to a licensee, the Chicago Personal Property Lease Transaction Tax ("Transaction Tax") tax may apply and present certain challenges for a taxpayer not familiar with the tax. This post…

Now that we have provided a primer on procedural issues at Illinois, Chicago, and Cook County, it's time to jump into the fun stuff! Illinois has a relatively high corporate income tax rate compared to most states (a combined 9.5%), coming in at the fourth highest rate in the United States. In 2019, the Governor's budget anticipates that corporate and personal income taxes will constitute more than 50% of Illinois' general funds revenues, generating over $20 billion. Consequently, Illinois' administration…

A recent national trend in the practice field of state and local tax has been the uptick in local jurisdictions' audit activity. The Cook County Department of Revenue ("Cook County" or "Department") is no exception to this trend where in recent years, the Department has increased its audit activity, and much to the chagrin of taxpayers, has taken aggressive positions in the interpretation of its tax ordinances. Consequently, this has led to increased litigation in the administrative proceedings before the…

Although not on the mind of most taxpayers, an audit by the City of Chicago Department of Finance ("Department") is a risk for any taxpayer who may be operating in the City or who enters Chicago for any business purpose. With a variety of unusual taxes, such as the Chicago Amusement Tax, Personal Property Lease Transaction Tax, and Real Property Transfer Tax, compliance is no easy task and an audit can come as an unwelcome surprise. Chicago's Authority to Tax…

There's no way around it: Illinois is a complicated state in which to do business. From a tax perspective, there are so many nuances and units of government that form a complicated regulatory web. But as long as Chicago continues as the economic hub that it is, most multi-state businesses will be forced to understand the nuances of the state and local rules in Illinois. This post is the first in a series that will address how to navigate even…

Your client has a judgment or arbitral award and becomes aware of an unrelated contract where the judgment debtor is to be paid through letters of credit issued by a bank branch in the UK. Can you use that as a source of recovery? In the recent case of Taurus Petroleum Ltd v. State Oil Marketing Company of the Ministry of Oil, Iraq, (2017) UKSC 64, the court said "yes". There, the letters of credit were issued by the London branch…

Just over three years ago, Illinoisans cheered the changes to the motor vehicle leasing law that were to lead to tax savings for lessees and level the playing field with other state's leasing laws.[1] As lessors worked through the Act's clunky definition of "qualifying motor vehicle" and scrambled to implement the necessary system changes, they likely paid little attention to the Act's imposition of post-lease charges knowing such charges were at least three years away. [2] Now, as the first…

South Dakota v. Wayfair, Inc. and Illinois' Marketplace Fairness Act As many of you by now know, the U.S. Supreme Court granted South Dakota's certiorari petition in South Dakota v. Wayfair, Inc. et al., No. 17-494 and has scheduled oral arguments for April 17, 2018. The Wayfair case involves the constitutionality of South Dakota's economic nexus statute that requires out-of-state, online retailers lacking a physical presence in the state to collect and remit sales tax on their sales delivered to South…

What is Cryptocurrency? Cryptocurrency itself is a string of computer-generated code.  This line of code is accessed by an owner's unique passcode secret private key.  Each owner's cryptocurrency is kept in their "Virtual Wallet". Virtual wallets are similarly anonymous as are the virtual currency balances. The transfer of cryptocurrency is based upon the block chain protocol, a public decentralized ledger that identifies transactions by a digital code with no link to a person or place. Practically, there is no public…

This article was previously published in Bloomberg Tax Reports. Partnerships and limited liability companies ("LLCs") currently subject to the Illinois "replacement" tax received a gift this holiday season: proposed regulations addressing the deduction for reasonable compensation or personal services income. On December 11, 2017, the Illinois Department of Revenue ("Department") issued proposed regulations that seek to clarify the scope of the deduction by setting forth specific rules and hypothetical examples. Nevertheless, even with the proposed regulations, the deduction is beset…

English courts are developing ways to ensure that creditors are not thwarted by sophisticated and devious debtors using offshore structures that do not appear to be fictitious. Worldwide Freezing Orders (WFO) apply to assets where a defendant has the power to dispose of or deal with the asset as if it is his own. In JSC BTA Bank v. Ablyazov,  (no. 10), (2015) 1 WLR 4754, the Supreme Court held that the defendant's, the settlor of the trust, right to…

Given the increasing prevalence of intercreditor agreements in commercial finance transactions, lenders and counsel should be aware of an important 2017 Illinois appellate court decision, Bowling Green Sports Center v. C.A.G. LLC, in which the court ultimately determined that in certain circumstances a senior lender's modification of terms with its borrower could jeopardize its priority status relative to junior lenders. In Bowling Green Sports Center, the senior lender made a $3.4 million loan to finance the purchase of a bowling alley, which…

With no formal announcement it appears that the City of Chicago Department of Finance ("City") has changed the terms of its voluntary disclosure program ("VDA Program"). Historically, the City's VDA program provided for a limited look-back period of four years, the full abatement of penalties, and now the City will also grant the waiver of half the interest that would otherwise apply to participating taxpayers. This is a positive development for taxpayers choosing to participate in the City's VDA program…

The federal courts just gift-wrapped a decision for taxpayers, right in time for the holidays. In late November, the U.S. Court of Appeals for both the Fifth and Seventh Circuits held that local hotel occupancy taxes do not apply to the service fees online travel companies ("OTCs") charge for facilitating hotel reservations. These decisions signal not only relief for OTCs, but may have wider reaching implications for the applicability of other local taxes to service fees. Seventh Circuit's Interpretation of…

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