Illinois Finally Offers Certainty and Relief for Victims of Sales Tax Lawsuits, but Prompt Action is Required in Pending Cases

As reported in our earlier Blog Post, wineries and retailers that sell online and ship to Illinois consumers have been victimized by a barrage of lawsuits filed by one Chicago law firm to collect sales tax supposedly due on Shipping & Handling charges.  While the claims asserted have largely been meritless, Illinois has allowed the lawsuits to proceed for years.  Because the cost of defending the cases has exceeded the cost of settlement, almost all cases have settled, resulting in a large windfall to the law firm and to the State of Illinois, which has collected a portion of the “back taxes” that were not owed in the first place. 

The government of Illinois has finally decided to put a stop to this process.  On August 28, 2015, the Illinois Department of Revenue issued proposed regulations that embody what has long been the law of Illinois:  wine producers and wine retailers selling wine to Illinois consumers are not required to collect sales tax on Shipping & Handling charges if:

·         The Shipping & Handling charges are stated separately from the price of the wine;

·         The seller offers the option to have the wine picked up at its facility (winery, tasting room, etc.), instead of having it shipped, even if that facility is not in Illinois; and

·         The price of the wine is the same regardless of whether they are picked up or shipped into Illinois, and no additional “profit” is earned on Shipping and Handling charges.

The proposed regulations will not become effective until they are approved by a committee of the Illinois Legislature, which will not occur until after a 45-day period for public comment.  If approved, the regulations would be retroactive to November 2009, effectively eliminating any claims (by the State or Qui Tam plaintiffs) for back taxes on Shipping and Handling under the Illinois 6-year statute of limitations for such claims, if the wine producer or retailer can demonstrate compliance with the requirements.

Notwithstanding that the regulations are not yet effective, the Illinois Attorney General has stated that her Office will review pending claims brought by the plaintiff law firm to collect sales taxes (but not settled claims).   The Attorney General will exercise her prerogative to dismiss any cases brought against a winery that was in compliance with the three requirements of the proposed regulations.  The defendants in the pending cases need to submit affidavits with proof of their compliance with those requirements and the period during which they were in compliance.  (Note that the State could still seek back taxes for any period in which a defendant was not in compliance). 

To obtain this review, the defendants must submit their proof by September 15.  Every defendant that would qualify for relief should contact their Illinois counsel and submit the required proof promptly.  This long-overdue action by Illinois will hopefully end the meritless claims against online sellers in that State.

We are counselling clients to review carefully their terms and conditions of sale.  We encourage all wineries, whether or not they sell wine to Illinois residents in accordance with an Illinois DTC permit, to review their website terms and conditions for compliance with legal requirements.   This basic level of legal due diligence will pay great dividends in preventing exposure to actions such as the ones initiated by the plaintiff lawyers in Illinois.