Tax Tips – December 2009

Was that Price Really Right?

ILLINOIS

Many of us have done some holiday shopping on the internet this season, but only a few savvy shoppers check the price including the sales tax. At least two Illinois internet shoppers checked the price on shipping charges for goods purchased from Wal-Mart in recent years and thought they had been overcharged the Illinois retailer’s occupation (sales) (“ROTA”) and use tax. They initiated a class action law suit to recover the tax. Turned out they were wrong and Wal-Mart was right.

A retailer's tax liability under the Illinois ROTA is computed as a percentage of “gross receipts”, defined as the “total selling price”. Similarly, the use tax is determined as a percentage of the “selling price.”

86 Ill. Adm. Code Section 130.415, titled “Transportation and Delivery Charges,” provides in relevant part:

(d) If the seller and the buyer agree upon the transportation or delivery charges separately from the selling price of the tangible personal property which is sold, then the cost of the transportation or delivery service is not a part of the ‘selling price’ . . . Delivery charges are deemed to be agreed upon separately from the selling price of the tangible personal property being sold so long as the seller requires a separate charge for delivery and so long as the charges designated as transportation or delivery or shipping and handling are actually reflective of the costs of such shipping, transportation or delivery . . . evidence that transportation or delivery charges were agreed to separately . . . the purchaser had the option of taking delivery of the property, at the seller's location, for the agreed purchase price . . .

The Illinois Supreme Court found that the word “option” is indicative of “choice”. Although the petitioners could choose from a variety of delivery alternatives, they had no choice but to have the products delivered. They did not have the “option” of buying the product on the internet and picking it up at a brick and mortar Wal-Mart. The court concluded that this absence of choice is indicative that the shipping charges were part of the taxable selling price, rather than the subject of a separate agreement. Kean v. Wal-Mart Stores, Inc., Supreme Court of Illinois, (Nov. 19, 2009) Note that a prior version of section 130.415(d) stated “Mail order delivery charges are deemed to be agreed upon separately”. This regulation was amended, effective October 2, 2000, by deleting the mail order specific references. Lucky for Wal-Mart that they were collecting sales tax on shipping charges in Illinois! The takeaway for the rest of us is to take a second look at our tax policy regarding shipping charges to determine that it is up-to-date!

Georgia’s Latest Version of the Integrated Plant Theory

GEORGIA

Pursuant to House Bill 237, the Georgia Department of Revenue adopted an integrated plant theory with respect to manufacturing machinery and equipment, to be effective January 1, 2009. The Department of Revenue has codified House Bill 237 at O.C.G.A Section 48-8-3(34)(A). Since adopting the integrated plant theory, the Department of Revenue has made several attempts to write a regulation to implement it. The latest version of the regulation took effect December 9, 2009 and applies to all transaction occurring on or after January 1, 2009.

Under the newly adopted regulation, the manufacture of tangible personal property begins when industrial materials are received at a manufacturing plant and ends when the packaging operation is complete and the property is ready for shipment or sale, even if the manufacture of the property occurs at more than one manufacturing plant.

Earlier drafts of this regulation severely limited the application of the integrated plant theory. The recently adopted regulation is broader and more in line with “integrated plant theories” used in other states. Taxpayers who have relied on the earlier guidance should review their purchases to determine if any refund opportunities exist.

NEW: State Amnesty Programs At-a-Glance, updated monthly.

¹ Streamlined Sales Tax amnesty program does not
include use tax due on purchases or any other taxes..

Note: New York State has established a Penalty and Interest Discount (PAID) program to encourage eligible taxpayers to pay off qualifying tax liabilities that are at least three years old. The program begins on January 15, 2010 and runs through March 15, 2010. Depending on when the assessment or final determination was issued, eligible taxpayers will only have to pay the tax due plus 20% of the accrued interest and penalties if an assessment was issued on or before December 31, 2003; or, 50% of the accrued interest and penalties if an assessment was issued after December 31, 2003. The Department of Taxation and Finance will send written notices to eligible taxpayers starting in early January 2010. If you believe you are eligible for this program and do not receive a notice from the State, participation instructions will be available on the State’s website beginning January 15th. Please note that the PAID program differs from a typical amnesty program as eligibility is limited to only those taxpayers with outstanding tax liabilities that are at least three years old. All other taxpayers with unknown liabilities should consider using the State’s Voluntary Disclosure program to remit their outstanding tax due.

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