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Illinois DOR Proposes Use Tax Nexus Standards for Trade Show Retailers

The Illinois Department of Revenue (Department) has issued a proposed new administrative rule addressing the nexus implications for out-of-state retailers attending trade shows in Illinois. The proposed rule, linked here, reaffirms the Department’s long-standing position that all sales made at an Illinois trade show are subject to Illinois Retailers Occupation Tax and any applicable local taxes. In a move welcomed by taxpayers, the proposed rule goes on to delineate a “safe harbor” of activities that will not create nexus for out-of-state retailers with respect to their other Illinois sales.

Under the safe harbor provision, an out-of-state retailer’s presence at an Illinois trade show will not create nexus for its other Illinois sales if each of the following conditions is met:

  1. The retailer attends no more than two trade shows per calendar year;
  2. The retailer is physically present at the two trade shows for an aggregate total of no more than eight days during any calendar year; and
  3. Combined gross receipts from sales made at the two trade shows during any single calendar year do not exceed $10,000.

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Retailers, Such as IT and Pharmaceutical Vendors, Among Businesses Targeted by Texas Comptroller’s Proposed Rule Change

The Texas Comptroller of Public Accounts recently proposed amendments to 34 Tex. Admin. Code 3.584 relating to the reduced rate available under the Texas Franchise Tax for retailers and wholesalers. These proposed revisions, which appear to formalize elements of informal guidance issued in August of 2015, have the potential to substantially impact a great number of businesses, specifically in the information technology and pharmaceutical industries.

The Texas Franchise Tax is imposed on taxable business entities, including corporations, partnerships and limited liability companies, doing business in the state of Texas. The generally applicable tax rate is 0.75 percent of “taxable margin”—which is itself computed under a complex set of statutes and regulations—however, the rate is reduced to 0.375 percent for entities “primarily engaged in retail or wholesale trade. To qualify for the reduced rate, a business must meet two statutory thresholds: first, it must earn more revenue from retail or wholesale trade activities than it earns from all other business activities; and second, it must earn less than 50 percent of its retail or wholesale trade revenues from the sale of products it or an affiliate entity produces. Tex. Tax Code § 171.002(c). The current version of Rule 3.584 (the Rule) clarifies that, for purposes of the second statutory threshold, a product is not considered to be produced by the retailer if “modifications made to the acquired product do not increase its sales price by more than 10 percent.” In other words, there is a safe harbor under the Rule for retailers who make some modifications to products they sell; so long as those modifications do not increase the product’s sale price by more than 10 percent, the sales of those products will not factor into the second statutory threshold. This is currently the only guidance provided by regulation regarding the scope of the “primarily engaged in” standard.

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