Online Wine Retailer Wins Case Against False Claims Assertions Over Failure to Collect Local Taxes For Sales
In a recent win for online wine retailers (not wineries selling direct), the Illinois appellate court has upheld the dismissal of an action against online wine retailer Winetasting.com alleging it violated Illinois’ False Claims Act (740 ILCS 175) in failing to collect and pay the local retailer’s occupation tax for the municipality where the wine was shipped in addition to collecting the State sales tax required of retailers shipping wine to Illinois’ residents.
The plaintiff’s were bringing a qui tam action looking to act on behalf of the State (which might allow them to collect the subsequent attorneys’ fees and reward for a successful action). The complaint asserted the it was an actionable “reverse false claim” for the receipt to show that the state alcohol tax was collected but to fail to collect the local taxes on the sale of alcohol (upwards of 6.25% +) on wine they bought online (mostly an unimpressive selection). You can read the opinion here.
The notable portion here for online liquor, beer, and wine retailers shipping into Illinois is that this case may not be the final word on the matter. There was a lengthy dissent, the kind that usually means the attorneys will want to try their hand at appealing the matter to the Illinois Supreme Court. The dissent argued that the majority opinion basically addressed the wrong issue as to whether failing to state a tax on a receipt amounted to a “fraudulent” statement sufficient for liability under the False Claims Act and that instead, it should have looked to other precedent to note that these “reverse false claims” are actionable and protect the valuable public policy of ensuring that all proper taxes are collected for the State and local municipalities’ benefit.
This certainly raises the spectre enough for online wine, beer, and liquor, retailers to perform audits of their shipping and sales practices to determine if they should be collecting and paying local retailer occupational taxes for the sale of alcohol delivered to residents. For those interested in the issue, a good place to start is the 2015 Illinois Department of Revenue Opinion discussing the tax sales on wine shipped from out-of-state wineries – while not an issue involving retailers shipping to Illinois residents, it does address several of the tax issues implicated in shipping alcohol to Illinois residents. A second opinion worth reading addresses out of state and in state sales of liquor from an Illinois location.