Illinois requires marketplaces to collect sales tax

Update 8.6.2019: Senate Bill 690 was signed into law on June 28, 2019.

Starting January 1, 2020, certain marketplace facilitators will be responsible for collecting and remitting the tax due on sales made through the platform in Illinois.

Under Public Act 101-0009, a marketplace facilitator is considered the retailer of each sale of tangible personal property or taxable services made through the marketplace if:

  • Cumulative gross receipts from sales of tangible personal property or taxable services to purchasers in Illinois by the marketplace facilitator and its marketplace sellers are $100,000 or more; or
  • The marketplace facilitator and marketplace sellers cumulatively enter into 200 or more separate transactions for the sale of tangible personal property or taxable services into Illinois.

At the end of each quarter (the last day of March, June, September, and December), a marketplace must determine whether either of the above thresholds was met during the preceding 12-month period.

If a remote marketplace establishes economic nexus by meeting one or both thresholds, it must collect and remit Illinois sales and use tax for one year. At the end of that year, the cycle starts again: The marketplace must determine whether it met one of the thresholds in the previous 12-month period, etc.

Once a marketplace assumes the sales tax collection/remittance responsibility, it must certify to each marketplace seller that it assumes the rights and duties of a retailer in Illinois with respect to sales made by the seller through the marketplace. For their part, marketplace sellers must retain records of all sales made through a marketplace.

Sales included in the economic nexus threshold

Illinois has imposed a sales/use tax collection obligation on remote sellers of tangible personal property and taxable services with economic nexus in the state since October 1, 2018. When calculating the threshold, remote sellers currently include sales of tangible goods and taxable services made in the state through a marketplace.

Effective January 1, 2020, a remote seller should exclude sales made through a marketplace when determining the threshold if the marketplace has certified that it collects and remits sales tax on the seller’s behalf.

Simplifying sales tax compliance for remote sellers

Senate Bill 690, which was sent to Governor J.B. Pritzker for his signature on June 5, 2019, would facilitate sales and use tax compliance for remote sellers while reducing its cost.

If enacted, the measure would authorize the state to provide the services of certified service providers (CSP) and certified automated systems (CAS) to remote retailers at no cost. This would increase tax collections in the state by “providing a means for remote retailers to collect and remit tax on an even basis with Illinois retailers.” It would also “substantially eliminate the burden on those remote retailers to collect and remit both state and local tax jurisdiction use and occupation taxes.”

The Illinois Department of Revenue would be required to establish standards for the certification of CSP and CAS no later than December 31, 2019. It would be able to work jointly with other states to do so.

Additionally, the department would have to:

  • Provide and maintain an electronic, downloadable database that defines and lists the taxability of product categories
  • Provide and maintain a database that provides the retailers’ occupation tax rates (i.e., sales tax rates) for all jurisdictions in the state that levy such a tax
  • Provide and maintain a database that “assigns delivery addresses in this state to the applicable taxing jurisdictions.”

Starting January 1, 2020, a remote retailer that uses a CSP or CAS would be relieved of liability for having charged and collected the incorrect amount of tax resulting from erroneous information provided by the CSP or CAS, or erroneous data provided by the state.

Illinois isn’t the only state looking for ways to simplify sales tax compliance for remote sellers. Pennsylvania is creating a similar CSP program, while the Virginia Department of Taxation is required to provide adequate information to remote sellers to enable them to identify state and local tax rates and exemptions, and to software providers so they can make software and services available to remote sellers.

The 24 states that are members of the Streamlined Sales and Use Tax Agreement (SST states) provide CSP services for free to businesses that qualify as a volunteer seller. Learn more about the intersection of remote sales tax requirements and SST.

Avalara is a CSP through the SST. Find out if you qualify for free tax service in 24 states.

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