Illinois looks to tax remote retailers

Update 6.6.2018: Illinois has adopted economic nexus with the enactment of House Bill 3342. Beginning October 1, 2018, out-of-state retailers that have at least $100,000 in gross receipts from sales of goods or services in Illinois, or 200 separate sales of the same, are required to collect and remit Illinois tax. 

Illinois lawmakers are considering economic nexus legislation that would impose a tax collection obligation on out-of-state retailers making more than 200 sales transactions in Illinois annually, or generating at least $100,000 annually from sales of taxable goods or services in Illinois. If enacted as written, the law would take effect January 1, 2019.

The state’s timing is interesting. The measure was introduced on February 7, three weeks after the Supreme Court of the United States announced it would take a case that could change the way states tax out-of-state sellers. The case, South Dakota v. Wayfair, Inc., centers on an economic nexus law similar to the one now under consideration in Illinois.

States currently lack the authority to tax sales by out-of-state sellers that don’t have a physical presence in the state. This physical presence limitation was last upheld by the Supreme Court in Quill Corp. v. North Dakota, 504 U.S. (1992). The South Dakota case, which challenges the physical presence standard, is a vehicle for the court to reconsider Quill. Oral arguments are scheduled for April 17, and a decision is expected in June.

Senator Cristina Castro is the primary sponsor of Senate Bill 2577. She believes online stores have an advantage over Illinois brick-and-mortar businesses that have to collect and remit sales tax for the state. “It’s time for that to change.”

Lawmakers in many other states feel the same, thus the challenge to Quill. If the court rules in favor of South Dakota, tax compliance may dramatically change for businesses that sell across state borders.

Learn more about Quill and why it matters in this on-demand webinar.