A state appeals panel has ruled Best Buy must collect and pay sales taxes to the state on the appliances it sells, even if those appliances – like dishwashers, over-the-stove microwaves and cooktops – are essentially built into the house in which they may be installed.
On Aug. 14, a three-justice panel of the Illinois First District Appellate Court rejected Best Buy’s arguments such appliances shouldn’t be subject to sales tax because they become part of the “real property” of a house, and not just “personal property.”
The justices found Best Buy is always a retailer, subject to Illinois sales tax laws, whether or not it also installs the products it sells.
“… There is a real and substantial difference between a retailer such as Best Buy, which primarily sells appliances to the end user and whose installation services are merely incidental to the sale of the appliance, and a construction contractor, … which provides a service for which the appliance is merely incidental,” the justices wrote.
The decision is the latest, and perhaps final, step in a three-year-long court fight between Best Buy and the Illinois Department of Revenue over the sales tax liability of Best Buy and other retailers that both sell appliances and install them in customers’ homes.
In this case, the state Revenue Department asserted Best Buy had shorted the state more than $192,000 in sales taxes on certain appliances it sold from July 2012-December 2013.
Best Buy opted to fight the state’s tax claims.
The retailer argued it rightly did not collect sales taxes from customers on those appliance sales, because its workers also installed the appliances directly into the customers’ homes, usually bolting or bracketing the appliances into a countertop or under a cabinet.
These appliances included built-in dishwashers, cooktops, microwave ovens and others.
By not just placing these appliances into a kitchen or other room, but actually attaching the appliances to the structure or trim of customers’ homes, Best Buy said it should be treated under Illinois tax law the same as a construction contractor.
Such contractors are exempted from collecting sales taxes on goods and products they install.
To do otherwise, Best Buy said, would violate the Illinois state constitution, because it would treat similar businesses differently.
Cook County Judge Michael F. Otto bagged that argument.
And the appellate panel sided with the judge.
The opinion was authored by Justice Mathias W. Delort; justices Thomas E. Hoffman and Mary K. Rochford concurred.
They said the appliances, even if they are “built-in” “are not permanently affixed to and an integral part of the real estate.” Further, they noted that customers can purchase the same appliance from Best Buy, whether or not Best Buy itself installs it.
“… The circuit court correctly found that the installation service was incidental to the sale, and Best Buy is engaged in the occupation of selling at retail,” Justice Delort wrote.
Therefore, the justices said, the differing treatment of Best Buy and other appliance sellers from installation contractors under the state tax laws doesn’t violate the state constitution.
Best Buy has been represented in the action by attorneys David A. Hemmings, Robert M. Galloway, Scott L. Brandman and David A. Pope, of the firm of Baker & McKenzie LLP, of Chicago and New York.