The Illinois Department of Revenue has been investigating sales tax evasion among gas station owners since 2008.  Last month that investigation produced its latest string of indictments.  Six owners were indicted, each with multiple counts of sales tax fraud.  This brings the total number of gas station owners indicted since 2008 up to 66.  IDOR reports it has collected almost $13 million worth of unpaid sales taxes so far.

The penalties for tax evasion can be severe.  Each of the six owners indicted last month, if charged, faces a 2 to 5 year prison sentence for each count of tax evasion.  Tax evasion is taken seriously in any state—a government, after all, has a vested interest in protecting its revenue stream—but the situation in Illinois is made more difficult by our complex sales tax laws.  This is most pronounced in Chicago which has the distinction of having both the highest sales tax in the country but also of having one of the most complicated system.  There’s a base tax rate of 9.75%.  Certain essential items, food and medical supplies, are taxed at 2%.  A variety of items then incur additional taxed including cigarettes, alcohol, soft drinks and bottled water.  Finally, anything purchased within a set proximity to downtown or at O’Hare or Midway airports incurs an additional tax.

Although the investigation begun in 2008 that produced six arrests last month is focusing on gas stations, IDOR routinely audits businesses of all types to ensure they have been paying their taxes.  Attorney General Lisa Madigan has indicated  that all tax evaders will be brought to justice.

If you are currently being audited by the Illinois Department of Revenue or the IRS, have unpaid tax issues, or for more information about sales tax, income tax or  other tax concerns, contact the Chicago Tax Attorneys of Horowitz & Weinstein.

Legal Disclaimer

The Department of Justice announced Monday that it had brought suit against three of the largest credit payment processing companies, Visa, MasterCard and American Express, for violating antitrust laws.  All three companies charge merchants a fee for access to their networks and these fees have been the focus of a DOJ probe that has been ongoing for two years.

There had been worry that an eventual decision by the DOJ might permit merchants to apply surcharges to credit transactions, offsetting the fees they incur, which might have reduced credit card usage by consumers.  Visa and MasterCard have already announced they are going to settle, perhaps because they wish to avoid such a verdict.  They have agreed to allow merchants to offer discounts for cash payments or for competing cards.  They still do not allow merchants to apply a surcharge to credit transactions.

American Express has indicated they will fight the suit.  They feel the ruling favors Visa and MasterCard.  American Express, which is a smaller company and controls a smaller section of the credit card market than Visa or MasterCard, charges higher fees to merchants to allow more attractive rewards programs to its members.  Merchants do not reap the benefits of rewards programs, so if they are allowed to offers discounts to competing cards, it stands to reason they might offer discounts to customers who use cards other than American Express.

For the consumer, all this means you may see merchants offering discounted prices for cash  transactions.  The situation presently remains uncertain because of American Express’s decision not to settle.  Visa and MasterCard now allow merchants to offer discounts to customers who pay with cash, but American Express’s agreements still do not.  A merchant who offered discounts for cash might run afoul of American Express.

Legal disclaimer

This is part two of a series on foriegn corporations establishing a US presence.  Read part one here.

Method #3: Independent Sales Representatives and Distributors

Whatever your company’s product or service , whatever it sells or offers, chances are there are companies in the U.S. who already do something similar.  Instead of investing to set up your own branch or a subsidiary in the U.S., you can choose to sell your products to U.S. companies who then bring them to market.

This method could result in  your  surrendering much of your control over distribution and sales.  Your profits per sale will be reduced by the U.S. company taking its share, but the investment required on your part is much less than if you were to open a branch or subsidiary operation.  In addition, this method allows you to capitalize on existing distribution networks and refined knowledge of the U.S. market.

There may also be significant tax benefits to this method, specifically the possibility of reducing your exposure to U.S. taxation.  This will be influenced by many factors similar to those affecting subsidiary operations.

Because of the relatively minimal investment of capital and personnel needed and because of the benefits of partnering with an already established sales and/or distribution network, most companies looking to bring their products to the U.S. choose to do so by selling them to U.S. distributors or by partnering with U.S. sales representatives.

Method #4: Partner with a U.S. Company

An option halfway between a subsidiary and working with independent U.S. companies is that of partnering a U.S. company to bring your products or services into U.S. markets.  Such joint ventures can provide similar tax benefits to working with independent distributors and working with an established U.S. company affords you the advantage of its existing networks of distribution and its experience in the U.S. market.  As compared to working with independent distributors or sales representatives, a joint venture provides increased control over the sales and distribution process at the price of increased investment cost.  For some companies this may be a worthwhile trade.

For More

Entering into U.S. markets and establishing a U.S. business presence can be a very profitable move for a foreign company.  Every situation is different and ensuring you reap the maximum possible advantages of any given method can be complicated and likely requires an adept touch.  For more information on establishing a U.S. operation or for other corporate law concerns, contact the Chicago corporate attorneys of Horowitz & Weinstein

The United States is a very appealing market for non-U.S. companies. We’re a nation of consumers and generally U.S. tariff and import laws are welcome to foreign businesses.  For the foreign company looking to make an entry into U.S. markets there are several possible avenues, each with its own distinct advantages and disadvantages.  This post examines four ways companies can bring their products and services to America and establish a U.S. Business Presence.

Method #1: Open a Branch

Perhaps the most obvious path of entry for a foreign company looking to establish a U.S. presence is to open up a branch office in the United States .  Unfortunately, this may be the least desirable option.There are many appealing aspects to opening a new branch in the U.S.  This option affords you the greatest possible control over the distribution and selling of your product and there are no middlemen to reduce your profits.  Your people will staff  the new office and they likely already know your business and your products well.

Most of these advantages, however, tend to sound better in theory than they actually unfold in practice.  Your employees, for example, may know your products intimately, but chances are they are not as knowledgeable about the U.S. markets.  While you have complete control over the process from factory to store shelf, you may not execute the process as efficiently as possible.   Efficiency is often further reduced by the red tape of qualifying to do business in various states.  It should also be noted that opening a branch will require a likely sizable capital investment.

A major concern that may make it disadvantageous to establishing a U.S. branch office of a foreign business rests in the tax consequences.. A foreign corporation with a branch in the U.S. may  be classified as being engaged in business in the U.S. and therefore be subject to federal and state taxes, including possibly on some activities of the home office located outside the United States that might otherwise be exempt from U.S. taxation.  The U.S. has tax treaties with many different countries that may add additional rules and complexity.  Establishing a U.S. branch office can disqualify a foreign corporation from some of the benefits those treaties might otherwise provide.  Furthermore, branch profits that are not reinvested within the United States may be subject to a branch profits tax.

For the reasons outlined above opening a U.S. branch office of a foreign business is almost never the ideal method of entry into the U.S.  The other three methods discussed in this post are, essentially, attempts to overcome the disadvantages of the branch method.

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