Illinois ~ Sales and Use Tax: Administrative Remedies Must Be Exhausted on Nexus Question

CCH Tax Day Report

A nonresident corporation must exhaust Illinois administrative remedies on its claim that it did not have sales and use tax nexus with Illinois before seeking a judicial determination. A party that contests a state administrative action generally cannot seek judicial review without first pursuing all administrative remedies available to it. An individual purchased a car in Illinois on behalf of the corporation, claiming a tax exemption. The Department of Revenue issued a notice of proposed use tax on the purchase. The notice stated that the proposed assessment could be reviewed by an informal board if it was contested. The corporation filed a lawsuit, asking the court to declare it did not have nexus with Illinois and enjoin the department. The department issued a notice of assessment to the corporation, which stated the administrative remedies available to contest the tax assessment.

The department sought to dismiss the corporation’s request for summary judgment. The trial court, however, granted the request, holding that the corporation did not have substantial nexus with Illinois and that the use tax only applies to persons residing in or entities engaged in business in Illinois. The court also ordered that the department could not collect the tax from the corporation. The appeals court found that the trial court should not have interfered with administrative proceedings by granting the summary judgment and ordering an injunction.

Airris Aviation and Marine, Inc. v. Beard, Appellate Court of Illinois, First District, No. 1-15-2834, September 30, 2016, ¶403-134

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