Illinois Levels the Playing Field for Internet Sales Taxes
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
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