Redpath Insights

Illinois Local Tax Changes for Out of State Remote Sellers

by Teri Grahn, CMI

December 23, 2020 - Starting January 1, 2021, Illinois is enacting the Leveling the Playing Field for Illinois Retail Act that will require remote sellers to collect local taxes based on their productโ€™s delivery location (destination sourcing). This means that out-of-state remote sellers, with no physical presence in Illinois, will now be required to collect Illinois local sales tax. Prior to this change, remote sellers have been collecting the Illinois use tax at the rate of 6.25% and have not been required to register for the Illinois Retailer Occupation Tax (ROT).

A remote seller is a company that has sales to Illinois, does not have any physical presence, yet has exceeded the Illinois economic thresholds of $100,000 or 200 transactions in the preceding 12-month period. Remote sellers will now have to collect local sales tax, based on the delivery address, in addition to the state tax.

Out-of-state sellers with some sort of physical presence will still collect the use tax at 6.25%. One example of physical presence would be if a company had an employee traveling into Illinois to solicit sales or to provide services. Since the company would not qualify as a remote seller, they would only have to collect the 6.25% state tax.

Sales through or by a โ€œmarketplace facilitatorโ€ will need to be looked at even more closely. A marketplace facilitator facilitates a retail sale, directly or indirectly, by an unrelated third-party marketplace seller. Amazon and eBay are examples of marketplace facilitators.

Marketplace facilitators will need to register for ROT and charge state and local sales tax on sales made on behalf of their marketplace sellers. Also, when marketplace facilitators make their own sales, they will need to know the location of the inventory and determine where their normal selling activities take place to know which rates apply.

Illinois has published guidance on the Leveling the Playing Field for Illinois Retail Act, along with flowchart to assist companies in navigating the new rules, which you can view by clicking here.

Out of state companies that are currently registered or need to be registered will need to determine how to register and collect the correct sales and use taxes from January 1, 2021.

If you have any questions or would like assistance with a nexus study, contact Teri Grahn, CMI, at 651-407-5889 or tgrahn@redpathcpas.com.

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Teri Grahn, CMI

Teri Grahn, CMI

Teri Grahn, senior manager is the sales and use tax service area leader and is a certified member of the Institute for Professionals in Taxation. She educates and assists commercial entities with multi-state sales and use tax procedures and compliance, and works with clients to review internal records and practices and educates their staff on processes. She also helps clients navigate the unknowns of entering new states and jurisdictions by researching specific products and services, system and invoice set up to remain compliant with future transactions. Teri also supports clients through sales and use tax audits by investigating assessments and answering questions throughout the process. Teri works with clients in various industries including manufacturing and distribution, construction and real estate, and technology. Prior to joining Redpath and Company in 2003, Teri performed sales and use tax audits for the Minnesota Department of Revenue for 9 years.