The Illinois Department of Revenue has come up with new rules to determine how businesses allocate local sales taxes that are likely to upset several companies, including the nation's largest airlines.
The agency filed emergency regulations Wednesday after the Illinois Supreme Court found in November the existing rule that sales tax is applied where a purchase offer is accepted was too narrow.
To comply with the court's opinion, the state's revenue department now will consider three additional business activities in addition to the place of order acceptance: where the offer is made, the location of inventory and the location of sales personnel authorized to negotiate and finalize transactions.
The agency said "merely relocating purchase order acceptance to a community without conducting any other business in that community will not be sufficient to allocate sales to that community."
The order acceptance factor had become a major source of controversy in Illinois after the Regional Transportation Authority began complaining that companies were running sham business operations in towns like Kankakee and Channahon, depriving taxpayers and government agencies in the city of Chicago and Cook County of hundreds of millions of dollars in sales taxes. Chicago's sales tax rate, currently 9.25 percent, is among the highest in the country.
The biggest offenders, according to the RTA, are United and American airlines. Each airline has a subsidiary in the city of Sycamore that purchases fuel for the companies' jets parked at O'Hare International Airport.
Sycamore's sales is 8 percent, of which 2.75 percent goes back to the municipality. Under their agreements with Sycamore, United and American recoup the lion's share of the Sycamore's portion.
United received a $17.9 million reimbursement in Sycamore's 2012 fiscal year, while American received $14.1 million, according to city budget documents. Sycamore retained $837,000.
Dozens of companies route sales transactions to towns with lower local sales taxes than Chicago. The new rules will affect companies that buy and sell fuel, lumber, building materials and other commodities.
Retailers with traditional over-the-counter sales will continue collecting sales taxes in much the same way they did before the court decision.
The emergency rules take effect immediately and will be in effect for 150 days unless a legislative panel suspends them.
In a letter to several lawmakers announcing the emergency rules, Brian Hamer, director of revenue department, said some businesses will be "unsatisfied" with the new regulatory guidance.
Hamer said many states take a more streamlined approach by applying sales tax on where a product is delivered to a customer, but such a policy change can only be initiated by the state legislature, not the revenue department.