As we begin 2021 and approach the legislative season, it’s clear there will be numerous changes that will impact tax compliance. This is spurred on by both the pandemic’s economic fallout and changes necessitated by our increasingly digital economy.
In this article, we examine several updates regarding tax compliance in Illinois and what they mean for any retailer doing business in the state.
After the 2018 Wayfair decision, Illinois enacted marketplace facilitation legislation, following in the footsteps of many other states. However, unlike other states, this legislation is creating friction with other pieces of tax law specific to Illinois.
These taxes, the Illinois Retailers’ Occupation Tax (ROT) and the Use Tax (UT), were in place before the implementation of marketplace facilitation legislation in January 2020. Customers pay UT to retailers, who then remit it to the Illinois Department of Revenue (DOR), unless the retailer has already remitted ROT on the gross receipts from the same sale, as explained by Bloomberg Tax. This means that even though the sale triggers both taxes, the retailer is only required to remit one.
However, now that marketplace facilitation has entered the playing field, it’s creating compliance issues. The root of the issue is that while UT has been imposed on marketplace facilitators, ROT was not, and this creates problems when specific marketplace transactions create ROT liability for marketplace sellers, even though the marketplace has already collected and remitted the UT on the same sales. This destroys the balance of the ROT and UT system that existed prior to January 2020.
Luckily, the issue is specific to sales made in 2020 as starting in January 2021, marketplace facilitators are required to remit ROT on behalf of themselves and their marketplace sellers, with credit given for UT liabilities. That being said, there is still no solution that resolves the 2020 issue.
Readers of our blog are familiar with the City of Chicago’s effective tax on software-as-a-service(SaaS) transactions for companies making sales into the city in the form of its Personal Property Lease Transaction Tax. While not a sales tax, it sure feels like one, and must be collected by the companies making the sale. For several years, this tax was at the rate of 5.25%, but has been steadily creeping up. On Jan 1, 2020, the rate increased to 7.25% and as of Jan 1, 2021, it is now at 9%.
Starting January 2021, remote wineries with an Illinois Winery Shipper’s License are required to collect sales tax on sales made in the state. Specifically, Illinois’ economic nexus, which is triggered by $100,000 in gross receipts from sales of tangible personal property or 200 separate transactions of tangible personal property, will now apply to out-state-wineries that do not have a physical presence in the state.
Remote wineries will also be required to collect and remit state and local ROT.
The Illinois DOR has stated that remote wineries holding a Winery Shipper’s License are the responsible party for ensuring tax requirements are met, even if the winery is using a third-party provider to ship the wine.
If you have questions regarding your obligations regarding sales tax remittance, or any other state sales tax compliance questions, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
