Last June, we posted about a Supreme Court decision that eliminated the requirement that a retailer have a physical presence in a state for it to be subject to the assessment of sales taxes. After the Wayfair decision, Illinois adopted Public Act 100-0587 amending the Use Tax Act and Service Use Tax Act to incorporate language to tax Internet transactions. Unfortunately for municipalities, the Use Tax and Service Use Tax is not distributed to municipalities based on the point of sale or point of delivery, but on a per capita basis. So, while Illinois has been taxing Internet transactions, this was not the golden goose many communities had hoped for when the Wayfair case was decided.
Now, Illinois municipalities can truly celebrate. In the flurry of legislative activity over the weekend, monumental changes to Illinois’ sales tax laws were adopted (pending the Governor’s approval) in SB 690, including a new law called “Leveling the Playing Field for Illinois Retail Act.” As its name indicates, the purpose of the law is to facilitate the payment and collection of sales taxes from “remote retailers,” including Internet sales.
Significant to municipalities, the bill would now require the payment of the Retailers’ Occupation Tax and eliminate the payment of Use Tax or Service Use Tax on such sales, effective July 1, 2020. That means these sales taxes will now include the 1% local share. Not all Internet sales are subject to a tax under the law. A remote retailer is only responsible for paying a tax (and therefore collecting it from purchasers) if (1) the cumulative gross receipts from sales to purchasers in Illinois are $100,000 or more; or (2) the retailer enters into 200 or more separate transactions with purchasers in Illinois.
Another change worth noting is that the taxing jurisdiction that will receive the local tax is determined based on where the purchase is shipped or delivered. This is a “point of delivery” rule, which is different from the “point of sale” rule that applies to in-state transaction.
In addition to the changes described above, the bill directs the Illinois Department of Revenue to designate certified service providers who will perform the tax collection function for remote retailers and to create automated software systems to simplify the tax collection process. Part of the software system will include an electronic, downloadable database which (1) classifies the taxability of each type of personal property, (2) defines the tax rates for each jurisdiction in the State, and (3) assigns delivery addresses to each taxing jurisdiction. With any luck, this should create a turnkey solution to help remote retailers comply with the obligation to pay sales tax on transactions with Illinois residents.
As we continue to review the legislation, and any Department rules to implement these changes, we will provide updates on whether municipalities need to amend their local tax ordinances to capture their local sales taxes on remote transactions in addition to the local share of the State sales tax.
Post authored by Adam Simon