On October 1, 2018, out-of-state retailers who meet certain minimum sales or transaction thresholds will be required to collect and remit the same 6.25% Use Tax (UT) for which Illinois online retailers are already obligated.
Illinois enacted Public Act 100-587 back in June in advance of the expected ruling of U.S. Supreme Court decision South Dakota v. Wayfair, Inc. in which “The Act covers only sellers that, on an annual basis, deliver more than $100,000 of goods or services into the State or engage in 200 or more separate transactions for the delivery of goods or services into the State.” The Illinois law duplicates this language which is applicable to the retailer’s prior 12-months of sales.
So, what does it mean for Illinois tax collections? First, online consumers will realize the 6.25% UT collection on more purchases. Those additional taxes will be remitted to the state and local governments at a rate of 5% and 1.25% respectively. The local government portion is allocated, based on set statutory percentages, first to Chicago, the Regional Transportation Authority, the Madison County Mass Transit District, and to pay Build Illinois bonds, with the remainder remitted to other municipalities and counties based on their relative population as compared to the statewide population. Illinois could realize a $200 million or more annual UT increase, but local government allocations will be smaller, and again, relative to this local/state population ratio.
The recent decisions do not impact the Retailers Occupation Tax (ROT), or traditional sales tax rate applicable to those "engaged in the business of selling tangible personal property at retail" in Illinois. UT is also nothing new, as purchases from Illinois retailers without a physical presence were always subject to the Use Tax. ROT or UT (when no sales tax has been collected on taxable products or services) are paid directly to the Department of Revenue by the purchaser. There is a line on the Illinois Individual Income Tax Return, Form IL-1040.