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The Illinois Appellate Court held that Best Buy’s sales of “built-in” appliances were not exempt from sales tax as construction contracts even though Best Buy installed the appliances in customers’ homes. Illinois imposes its sales tax on sales of tangible personal property, but a construction contract, which incorporates tangible personal property into real estate, is not subject to the tax. Best Buy collected sales tax on sales of appliances its customers picked up at its store but did not collect the tax on those sales in which Best Buy also contracted to install the appliances at customers’ homes. Best Buy based this differing tax treatment on the theory that in the installation transactions, it was acting in the role of a construction contractor rather than a retailer and had incorporated the appliances into, and permanently affixed them to, real estate. The court disagreed based on the substance of the transactions, reasoning that even in the installation transactions Best Buy was acting primarily as a retailer because the appliances had value to the customers separate and apart from the installation services. In the court’s view, the installation services were incidental to the sales of the appliances. Best Buy also argued that imposing sales tax on these transactions would violate the uniformity clause of the Illinois constitution because there is no meaningful distinction between a business acting exclusively as a construction contractor and a business acting both as a retailer and a construction contractor. The court, however, found that the distinction satisfied the minimum standards of reasonableness and rationality required by the uniformity clause because there is a real and substantial difference between a retailer which sells appliances to customers along with incidental installation services and a construction contractor which only provides a service for which the appliance is incidental.
Best Buy Stores, L.P. v. Dep’t of Revenue, 2020 IL App (1st) 191680-U (Ill. App. Ct. June 30, 2020).