Illinois Tax Litigation ALERT

As many of you have read, and a few of you have experienced, Attorney Stephen Diamond from Chicago has targeted the wine industry for claims that certain direct shipments of wine to Illinois citizens did not generate the proper amount of tax for the State of Illinois. Essentially, the claim is that many wine shipments from outside of Illinois to Illinois citizens neglect to calculate the Illinois sales tax properly and do not collect the use tax on shipping and handling charges. These lawsuits are brought in the Cook County, Illinois Circuit Court under Illinois law.

A few of our clients have already been sued by Mr. Diamond. Several others have discovered that he purchased a bottle or two of wine from them late last year in an apparent move toward litigation. We want to emphasize that other counsel, and even the State of Illinois, apparently disagree with this interpretation of Illinois law and regulations.

Here is a reference to a recent article on the subject.

This is a fast-moving situation, but we are advising our clients to take the following steps:

1. Check your records and the records of any fulfillment companies to determine what shipments have been made to Illinois customers, who those customers might be, and how taxes were calculated.

2. With any pending orders, review the tax calculations, particularly the tax, if any, attributed to the shipping and handling. If there is any question about pending orders, consider holding them until the calculation issue is resolved or an alternative strategy is devised.

3. If you are served with litigation on this issue by Mr. Diamond or anyone else, please consider contacting us right away. We are not licensed to practice in Illinois and would not be able to defend any litigation. However we, and other California firms with wine clients, are trying to coordinate the retention of Illinois counsel. We have identified attorneys at the Chicago office of Jones Day who are experienced in this sort of claim. We hope to coordinate the cases and any defense and/or settlement, together with Illinois counsel, and other California counsel with clients who are targeted.

4. If you shipped wine to Illinois customers in 2014 and think you may not have complied with this interpretation of tax calculations, consider making supplemental tax payments to the State of Illinois. (We are informed that the purported rate is 6.25% on the shipping and handling charges – but we do not hold ourselves as authorities on this.) Some fulfillment companies, such as Ship Compliant, are revising their software programs to calculate this extra tax. This step may or may not insulate you from a claim, particularly if you have a history of shipments to Illinois.

Feel free to contact us if you have further questions. John Mackie of this firm is probably best informed here on the topic.