Suburban Chicago Retailers (Illegally?) Pay Sales Tax for Customers in Stimulus Check Sale

April 29, 2008

In suburban Chicago, some enterprising retailers are encouraging taxpayers to spend their stimulus payment checks in their shops:

About 75 merchants in Geneva’s downtown area along and off State Street are looking for you to visit them today and Sunday.

If you do, they’ll pick up the sales tax on your purchases.[…]

“Everybody is pretty geared up for it,” said Carolyn Dellutri, downtown development coordinator for the city.

The unofficial theme, she said, is “You paid your income taxes on Tuesday, we’ll pay your sales taxes this weekend.”

Participating stores are flying a Tax-Free Zone banner.

Cutting your prices by 7% may not be much, but it’s a nice gesture that probably worked rather well. (Especially since Chicago, with its punitive 10.25% sales tax rate, is just across town.) One problem though: it’s probably illegal. Illinois law:

It is unlawful for any retailer to advertise or hold out or state to the public or to any purchaser, consumer or user, directly or indirectly, that the tax or any part thereof imposed by section 3 hereof will be assumed or absorbed by the retailer or that it will not be added to the selling price of the property sold, or if added that it or any part thereof will be refunded….
–35 Ill. Comp. Stat. 105/7.

And Illinois enforces it, with state revenue officials sending these threatening letters to retailers who dare tell customers that they’ll pick up the sales tax. It’s a Class A misdemeanor offense, that can get you up to a year in jail and a $2,500 fine:

While we do not want to interfere with your advertising techniques, under the circumstances, we are compelled to do so. You should immediately cease advertising that no sales tax will be incurred. Any future advertisements of this kind will be viewed as a continuing violation, which could result in criminal prosecution.

This may be the dumbest tax law in the history of dumb tax laws. If a company offers a 7-percent-off sale across the entire store, that’s legal. But if the company says, “We’ll pay your 7 percent sales tax,” that’s not legal. The two are equivalent from the perspective of the state treasury, the seller, and the buyer. It’s just a matter of wording. Now there may be a case if the tax is hidden, but here it’s not—big posters are advertising that the tax exists and is being paid.

Because the statute prohibits such promises “directly or indirectly,” is it even possible to draw a line between what is legal and illegal? If the company says in an ad, “Everything in the store is 6.25 percent off today, which is the same as you, our customer, paying no sales tax,” is that legal? What if the store just says, “6.25 percent off today,” which would hint that there is no sales tax? Is that legal? We’d love to be the economist or legal expert called to testify in a state prosecution over this silliness.

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