United States: Illinois Department Of Revenue Close To Clarifying Rules On Taxability Of Shipping And Delivery Charges

For the past several years, out-of-state retailers have been confounded by the tax treatment of shipping and delivery charges on merchandise shipped to Illinois consumers. Recently, a single law firm has filed hundreds of qui tam lawsuits pursuant to the Illinois False Claims Act targeting out-of-state wine and liquor producers and retailers based on their alleged failure to collect and remit taxes on delivery charges on shipments to Illinois customers who made purchases over the internet. While these claims almost always lack merit, the cost of fighting them is generally far greater than simply agreeing to settle, resulting in an unwarranted windfall for the purported relator in the lawsuits.

State officials are now taking steps on a number of fronts to combat this abusive behavior, including an effort to clarify the law on the taxability of delivery charges. As we previously reported in " Illinois Attorney General's Office Announces Intention to Dismiss False Claims Act Cases Against Liquor Retailers" (August 2015), the Illinois Attorney General has filed motions to dismiss a number of these cases against out-of-state liquor retailers, based on lack of nexus. In the same vein, on January 20, 2016, Cook County Circuit Court Judge Thomas Mulroy granted the State of Illinois's motion to dismiss several of these cases against wineries, finding that absent fraud, misconduct, or bad faith by the Attorney General, it is up to the state to decide which cases it wishes to pursue.

In addition to the Attorney General's action, in August 2015, the Illinois Department of Revenue ("IDOR") proposed amendments to its regulations concerning the taxation of shipping and handling charges.1 These amendments were designed to clarify when retailers are required to collect sales and use taxes on delivery charges to Illinois consumers. The proposed language makes clear that as long as a retailer allows the customer the option to pick up the products purchased (regardless of the retailer's location and the likelihood of the purchaser exercising that pickup option), there is no "inseparable link" between the purchase price for the product and any delivery and shipping charge the customer opts to incur, making the delivery and shipping charges on that purchase nontaxable. These amendments, which apply to all transactions after November 2009, should also effectively resolve the central question present in many of the pending False Claims Act cases concerning whether an out-of-state pickup option was sufficient to render any delivery charges nontaxable.

On January 19, 2016, IDOR submitted its Second Notice of Proposed Rulemaking to the Illinois Joint Committee on Administrative Rules ("JCAR"), indicating that it will incorporate several changes to the proposed regulations as a result of comments received during the first notice period. Text of the revised amended proposed regulations was released on February 4, 2016. 2 The revised amendments to the regulations were scheduled to be discussed at JCAR's February 16, 2016 meeting, but based on comments from the relator and questions from one of JCAR's members, the second notice period has been extended for another 45 days (until April 18, 2016) and will likely be on the agenda for either the March or April JCAR meeting.

In the revised amended proposed regulations, perhaps the most significant item IDOR addressed were concerns raised during the first notice period about potentially unintended consequences of the fact that the proposed regulations would be retroactive to the date of the Illinois Supreme Court's decision in Kean v. Wal-Mart Stores, Inc. 3 In Kean, the Illinois Supreme Court first established that delivery or shipping charges were taxable where they had an "inseparable link" to the sale itself. 4

In response to the proposed amended regulations released during the First Notice of Proposed Rulemaking, multiple commenters requested that IDOR clarify that taxpayers who either: (i) collected and remitted tax on delivery charges based on their belief that the delivery charges had an "inseparable link" to the sale under Kean, or (ii) did not collect and remit tax on delivery charges, based on prior guidance of IDOR that retailers who offered a pick-up option need not collect tax, would nevertheless be held to have correctly remitted tax on delivery charges during the time period between the Kean decision (November 19, 2009) and the effective date of the proposed regulations. The concern raised by the commenters was that the retroactive effect of the amendment could potentially give rise to yet another round of private lawsuits against taxpayers who either (i) collected and remitted tax on delivery charges, based on their belief that there was an "inseparable link" to the sale under Kean (potentially giving rise to Consumer Fraud Act claims that they overcollected taxes), or (ii) did not collect or remit tax on delivery charges, based on their reliance on prior IDOR guidance that no tax collection was necessary in the event the purchaser had the option to pick up the property at the seller's location (potentially giving rise to new False Claims Act cases that they undercollected taxes).

In its Second Notice of Proposed Rulemaking, IDOR indicated that it "added a safe harbor provision" to cover this situation. 5 Specifically, the proposed regulation was amended to provide that taxpayers who "computed their tax liability according to the provisions of either subsection (a) or subsection (b) of this Section for periods between November 19, 2009 and [the effective date of the amended regulations] shall be considered to have properly collected and remitted those charges." 6 In theory, this should prevent potential after-the-fact claims from the plaintiffs' bar against taxpayers regardless of whether they computed their tax liability by omitting tax on separately stated shipping charges under the prior version of the regulations, or remitted tax on separately stated shipping charges under Kean.

In addition to addressing the retroactivity issue, IDOR addressed three other key items in the revised version of the proposed amendments that are now pending before JCAR.

First, where a retailer offers unqualified free shipping, or qualified free shipping for eligible transactions (e.g., free shipping for purchases of $150), there is no "inseparable link" between the selling price of the merchandise and any delivery charges the customer might choose to incur (such as additional costs for expedited shipping). Those delivery charges, therefore, will remain nontaxable as long as the actual selling price does not increase or decrease based on the delivery method chosen by the purchaser. 7

Second, in situations where delivery charges would be taxable for some items but not for others (e.g., when there is a pickup option is available for some items ordered but a delivery-only option on others, and the customer chooses to have all items delivered), retailers can itemize the delivery charges for each item ordered such that the tax need only be collected on the items with taxable delivery charges (e.g., the item without a pickup option). If, however, a lump sum charge for delivery is assessed, then the delivery charge is nontaxable only if the selling price of the goods with the nontaxable pickup option is greater than the selling price of the goods with the taxable delivery-only option. 8

Third and finally, IDOR amended the proposed regulations to make clear that they apply equally to: (i) retailers making sales subject to the Retailers' Occupation Tax, (ii) retailers required to collect Use Tax on sales to Illinois residents because they maintain a place of business in Illinois, (iii) persons self-assessing use tax under Sections 9 and 10 of the Use Tax Act on purchases for which no tax is collected by the retailer, and (iv) persons holding winery shipper's licenses. 9

Once enacted, these regulations will represent another positive development in combating these abusive False Claims Act cases on delivery charges and leading one step closer to the end of this disappointing chapter in Illinois tax jurisprudence.


1.See Proposed 86 Ill. Admin. Code 130.415 and 130.410; see also First Notice of Proposed Rulemaking, 39 Ill. Reg. 11865 (August 28, 2015).

2.See JCAR 860130-11511865r02 (February 4, 2016).

3. 235 Ill. 2d 351 (2009).

4.See id. at 374.

5.See Memorandum from Vicki Thomas, Executive Director, Illinois Joint Committee on Administrative Rules to Constance Beard, Director Illinois Department of Revenue, January 19, 2106 ("Thomas Memo") at 3.

6. See Proposed 86 Ill. Admin. Code 130.415(b)(1)(A)(ii) at JCAR 860130-11511865r02; see also Thomas Memo at 4 ("[A]s a result, persons who computed their liability either under the regulation existing until the effective date of the amended regulation, or as directed under the Kean decision, will be held to have correctly remitted tax on delivery charges.").

7. See Proposed 86 Ill. Admin. Code §130.415(b)(1)(D)(iv) at JCAR 860130-11511865r02.

8. See id. at 130.415(b)(1)(E) at JCAR 860130-11511865r02.

9.See id. at §130.415(b)(1)(A)(ii) at JCAR 860130-11511865r02.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.