Beginning in the middle of 2014, Illinois attorney Stephen Diamond began suing wineries that ship wine directly to consumer in Illinois. Mr. Diamond argues that wineries should pay sales tax on the shipping fees it charges to Illinois consumers for direct shipments of wine. These are so called “Qui Tam” lawsuits that allow private citizens to sue on behalf of the state and collect a bounty if the state collects.
Whether shipping charges are taxable in Illinois is not clear. Wineries have historically relied on individual facts and circumstances to determine whether sales taxes are due on shipping charges. Some of these include whether shipping is listed separately on invoices, whether the consumer has an option to pick-up wine ordered online at the winery or whether the winery has marked up shipping charges. After the Illinois Supreme Court’s decision in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009), the Illinois Department of Revenue appears to have taken the position that all shipping charges on internet purchases are taxable.
Mr. Diamond appears to be proceeding against wineries in descending order of size in waves. His first wave of lawsuits against some of the largest wineries in the industry began in the middle of 2014 and his second wave against somewhat smaller wineries began in late 2014. We are now hearing from mid-size wineries that Mr. Diamond has begun a third wave of lawsuits in the spring of 2015. The Wine Institute has been lobbying the Illinois legislature to clarify when sales tax is due on shipping charges, but that process will take some time.
We have two immediate recommendations for our winery clients: Recommendation # 1: Do not accept any orders from, or ship wine to, Stephen Diamond or his associates Matthew S. Burns and Matthew Martin, in Illinois; Recommendation # 2: Until the rounds of lawsuits cease, or the Wine Institute succeeds in finding a legislative solution, or both, charge sales tax on shipping charges for internet orders in Illinois.
If you have any questions, or if you have received a complaint from Mr. Diamond, please feel free to contact Erik Lawrence at (707) 252-9000 or firstname.lastname@example.org.