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liabilitycorporation

plaintiffliabilitymotioncorporation

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Reader’s Digest Ass’n v. Mahin, 44 Ill.2d 354, 255 N.E.2d 458

Facts

Reader's Digest Association, a Delaware corporation with headquarters in New York, sought to enjoin the collection of use taxes assessed under the Illinois Use Tax Act for sales of books and phonograph albums to Illinois residents. The company did not have a physical presence in Illinois but engaged in local advertising and had subsidiaries that operated within the state. The court considered the extent of local advertising and the activities of the subsidiaries in determining tax liability.

Plaintiff is a Delaware corporation with office headquarters in New Castle, New York, and is not licensed to do business in the State of Illinois. It does not have any office, sales house, warehouse, tangible property, real or personal, or any telephone listing in the State of Illinois.

Issue

Whether Reader's Digest Association is liable for use tax on sales of books and phonograph albums to Illinois residents despite not having a physical presence in the state.

Rule

The Illinois Use Tax Act imposes a tax on the privilege of using tangible personal property purchased at retail from a retailer maintaining a place of business in the state. The definition of a retailer includes those engaging in soliciting orders within the state through advertising.

Section 3 of the Illinois Use Tax Act (Ill.Rev.Stat.1967, ch. 120, par. 439.3) imposes a tax ‘upon the privilege of using in this State tangible personal property purchased at retail * * * from a retailer.’ It also provides that the tax ‘shall be collected from the purchaser by a retailer maintaining a place of business in this State * * *.’

Analysis

The court analyzed the activities of Reader's Digest Association, noting that the company engaged in significant local advertising and had subsidiaries operating in Illinois. The court referenced previous Supreme Court decisions that established a sufficient connection for tax liability based on local solicitation and advertising. The court concluded that the benefits derived from these activities justified the imposition of use tax on the sales of books and albums.

Considering the local advertising admitted in plaintiff's amended complaint, it is apparent that certain promotional benefits were derived throughout the year.

Conclusion

The court affirmed the judgment of the Circuit Court, holding that Reader's Digest Association was liable for the use tax on sales of books and phonograph albums to Illinois residents.

For the foregoing reasons the judgment of the circuit court of Cook County striking and dismissing the amended complaint is affirmed.

Who won?

The Department of Revenue prevailed in the case, as the court found that Reader's Digest Association's local advertising and the activities of its subsidiaries created a sufficient nexus for tax liability.

The court found without further examination of the other subsidiaries an adequate basis for use-tax liability.

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Whiteside v. Commissioner of Revenue, 394 Mass. 206, 474 N.E.2d 1128