The Illinois Department of Revenue (IDOR) recently issued updated sales tax rules and guidance for remote sellers and marketplace facilitators. The updated rules and guidance reflect changes made by the 2019 “Leveling the Playing Field for Illinois Retail Act” that became effective on January 1, 2021 (Public Act 101-0031 and Public Act 101-0604).

Updated Retailers Occupation Tax (ROT) Rules

The new ROT administrative rules address six categories of retailers with different tax liabilities:

  1. Remote retailers incurring state and local ROT using destination sourcing for sales made to Illinois purchasers;
  2. Marketplace facilitators incurring state and local ROT using destination sourcing for sales made over the marketplace on behalf of marketplace sellers to Illinois purchasers;
  3. Marketplace facilitators incurring state and local ROT using origin sourcing for their own sales that are fulfilled from inventory located in Illinois and incurring state and local ROT using destination sourcing for all other sales of its own;
  4. Out-of-state retailers with a physical presence in Illinois incurring a use tax collection obligation for sales made outside Illinois and shipped or delivered to Illinois purchasers; such retailers also incur state and local ROT using origin sourcing for any sales made in Illinois;
  5. Illinois retailers, including brick and mortar retailers, incurring no state or local ROT for sales made over a marketplace (the marketplace facilitator will now incur state and local ROT liability based on destination sourcing for these sales); and
  6. Illinois retailers, including brick and mortar retailers, incurring state and local ROT based on origin sourcing for sales made in Illinois.

As a result of these differing tax obligations, the IDOR advises that it is critical that retailers examine their selling activities to determine their specific tax liabilities. This is especially important for retailers that engage in multichannel retailing (for example, retailers that engage in selling through their own website, as well as through a marketplace, or Illinois brick and mortar retailers that also sell over a marketplace).

Finally, the scope of the rules is limited to state and local ROT. The rules do not impact the liability of marketplace sellers and remote retailers for other taxes administered by the IDOR or taxes administered by localities.

Destination-based Sales Tax Guidance

On January 4, 2021, the IDOR published a website with technical guidance for remote retailers and marketplace facilitators who must collect destination-based sales tax starting Jan. 1, 2021. The website addresses how these taxpayers can determine tax rates and location codes, add and change locations on a MyTax Illinois account, and properly file Forms ST-1/ST-2.

Threshold Calculation Guidance for Marketplace Facilitators

Illinois Informational Bulletin FY 2021-02-A, provides additional ROT guidance for marketplace facilitators. The guidance advises that for the purposes of calculating the remittance threshold determination for marketplace facilitators, two categories of sales should be excluded:

  • sales for resale, and
  • sales of tangible personal property that is required to be registered with an agency of Illinois, including motor vehicles, watercraft, aircraft, and trailers.

All sales other than these, even if they are exempt from tax, must be included in calculating the tax remittance thresholds. Finally, a marketplace facilitator is considered to be habitually engaged in the selling of tangible personal property and as such, no sales made by a marketplace facilitator are considered to be occasional sales (unlike a remote retailer). Therefore, marketplace facilitators do not have occasional sales to exclude from their tax remittance threshold determination.

Further guidance was provided in September in Illinois Informational Bulletin FY 2021-2: Retailers’ Occupation Tax Guidance for Remote Retailers as set forth by the Leveling the Playing Field for Illinois Retail Act.