As Illinois implements new changes to their sales tax system, effective January 1, 2025, businesses are struggling with the age-old question, ‘how will this affect me?” At Miles Consulting, we have the answer. We’ll explain below – here’s what we’ll cover:

  1. Destination-Based Tax Collection
  • Summary: Starting January 1, 2025, Illinois will transition to destination-based tax collection, where sales tax is based on the delivery location rather than the seller’s location.
  • Why It Matters: This change aligns Illinois with most other states and streamlines the sales tax process for businesses operating in multiple jurisdictions.
  1. Updates Required in Avalara
  • Summary: Retailers using Avalara need to make manual updates to comply with the new regulations.
  • Why It Matters: These updates ensure proper tax sourcing under the new rules, helping retailers stay compliant with the new tax collection method.
  1. Property Leasing Taxation
  • Summary: Property leasing is now subject to sales tax across Illinois, except for Chicago.
  • Why It Matters: Businesses will need to adjust their tax practices based on this change, especially if they lease property outside of Chicago.
  1. Vendor Discount Cap
  • Summary: Illinois has capped the vendor discount that retailers can claim at $1,000 per month.
  • Why It Matters: This change could affect the cost structure of large retailers, potentially reducing their sales tax rebates.

Not quite what you need? Let’s talk. Reach out to us at info@milesconsultinggroup.com.

1. Destination-Based Tax Collection

One of the most significant changes happening in 2025 is the transition to destination-based tax collection. Retailers with physical presence in Illinois, as well as out-of-state sellers shipping products to IL customers, must now collect sales tax based on the delivery location. This means that if a retailer ships an item to a customer in Chicago from a warehouse in another state, they will charge the sale tax rate applicable to Chicago, rather than their own location. This change will better align sales tax collection processes with most other sales tax states.

2. Updates Required in Avalara

To ensure proper sourcing of sales tax, retailers using Avalara must make a few manual updates:

  • Change Settings: Retailers need to adjust their settings from “sales and sellers use” to “sales tax only” within Avalara. This will help streamline the tax calculation process according to the new regulations.
  • Activate ST-2 Forms: It is important for retailers to activate ST-2 forms in Avalara, these forms are necessary for reporting destination-based sales correctly.

3. Property Leasing Taxation

Another change that Illinois has enacted is regarding property leasing. While property leasing is now subject to sales tax across Illinois, this change does not apply within Chicago. Businesses involved in leasing tangible personal property should be aware of this distinction as they adjust their tax practices.

4. Vendor Discount Cap

Illinois has also capped the vendor discount that retailers can receive at $1,000 per month. This will likely have an impact to large retailers who benefit from a higher discount.

Overall, Illinois’ changes appear to help taxpayers with consistency between states; however, there are many nuances, so we suggest speaking with your sales tax consultant. Don’t have one? At Miles Consulting, this is what we do – book a consultation, drop us a line, or send us an email at info@milesconsultinggroup.com.

We can help you navigate these changes.

Stay tuned for further updates from the Illinois Department of Revenue as we navigate these new rules throughout 2025.