September 24, 2003, 12:00 AM

Illinois sues 70 retailers for failing to collect online sales tax

Arguing that they have violated state law that requires online retailers to collect sales tax if they maintain a physical presence within its boundaries, Illinois is suing 70 retailers to force them to pay up.

Arguing that they have violated state law that requires online retailers to collect sales tax if they maintain a physical presence within its boundaries, Illinois is suing 70 retailers to force them to pay up. “In a time of soaring budget deficits and fiscal crisis in Illinois, precious tax dollars are being lost with a simple click of a mouse,” said Attorney General Lisa Madigan. “It’s time for this cyber tax evasion to end.”

Illinois last week joined lawsuits against 65 retailers, including Barnes & Noble Inc., PetSmart Inc. and The Finish Line Inc., bringing to 70 the number of retailers it is suing. Earlier this year, it joined lawsuits against Wal-Mart Stores Inc., Target Corp., Office Depot Inc. and two smaller retailers. Although the details of each retailer’s violation vary, one common occurrence is for retailers named in the suits to allow products purchased online to be returned to a physical store in Illinois, Madigan’s office said. Illinois seeks to reclaim lost tax revenues for all online purchases made on the retailers’ web sites, and it will also impose fines and penalties to ensure future compliance with state tax law, her office said.

The lawsuits were originally brought by the Chicago law firm of Beeler, Schad & Diamond under terms of the state’s whistleblower statute. The firm, which stands to earn up to 25 % of any recovery Illinois realizes from the suits, has also filed similar cases in Tennessee and Nevada. Attorney Stephen Diamond, a principal of the firm, said the Tennessee cases could affect 15 to 20 retailers, the Nevada cases eight or nine retailers.

Diamond, who says his firm is also considering filing cases in more than 40 other states, says his firm conducts its own research into online retail practices before taking legal action. “I place orders with online retailers to determine what they do about tax collection,” he says.

A study by the University of Tennessee estimates that states forfeited $13.3 billion in sales tax revenue in 2001, a figure that it says will rise to $45.2 billion in 2006, because of uncollected online sales tax. At the same time, the study figures that states are already facing a combined budget shortfall of $68.5 billion for the 2004 fiscal year.

Following are the retailers Illinois is suing:

1-800 Inc.
April Cornell
Armani Exchange
Bally Total Fitness Corp.
Barnes & Noble, Inc.
Bass Pro Inc.
Bernini Inc.
Blockbuster Inc.
Books-A-Million, Inc.
Borders Group Inc.
Burlington Coat Factory
Carlton Cards Retail Inc.
Casual Corner Group
Coach House Gifts Inc.
Cooper & Company, Inc.
Croix Retail Inc.
Delia’s Corp.
Desmond’s Formal Wear
Dick’s Sporting Goods Inc.
Dunham Athleisure Corp.
Electronics Boutique Golding Corp.
Erwin Pearl Retail, Inc.
Etienne Aigner Inc.
Everything But Water Inc.
Frederick’s of Hollywood
Gateway Inc.
GSI Commerce Inc.
Guess? Inc.
Hallmark Cards Inc.
Hat World Inc.
Hot Topic Inc.
IZOD Corp.
Jo-Ann Stores
Jockey International Inc.
KB Toys Inc.
Lucky Brand Dungarees, Inc.
Maiden Form, Inc.
Mark Shale
Michigan Sport Goods Distributors, Inc.
Mikasa Inc.
Mothers Work Inc.
Movie Gallery Inc.
MTS Inc.
Musicland Stores Corp.
New Balance Athletic Shoe Inc.
Office Depot Inc.
Pacific Sunwear of California Inc.
Perfumania Inc.
PetSmart Inc.
Ritz Camera Centers Inc.
Spencer Gifts
Sportmart Inc.
Steve Madden Ltd.
Stuart Weitzman Inc.
Target Corp.
The Athlete’s Foot Group Inc.
The Finish Line Inc.
The Lang Companies Inc.
The Pfaltzgraff Co.
The Sports Authority Inc.
The Swatch Group (USA) Inc.
Toys-R-Us Inc.
Tupperware Inc.
Urban Outfitters Inc.
Vitamin World Inc.
Walking Company Inc.
Wal-Mart Stores Inc.
Wherehouse Entertainment Inc.

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