Illinois to drop economic nexus transaction threshold, offer remote retailer tax amnesty

Illinois will eliminate its 200-transactions economic nexus threshold effective January 1, 2026. This could simplify sales and use tax compliance for remote sellers with a high volume of low-value sales in the state.

In more good news for remote retailers, Illinois will offer a remote retailer amnesty program from August 1 to October 31, 2026. The state is also planning to run tax amnesty programs for businesses located in the state.

These changes are due to the passage of HB 2755, which Governor J.B. Pritzker is expected to sign soon. Here’s what you need to know.

Under current law, a business with no physical presence in Illinois will establish economic nexus and an obligation to collect and remit applicable Illinois sales and use taxes if, during the preceding 12 months, it meets either of the following thresholds:

• $100,000 in cumulative gross receipts from sales of tangible personal property to purchasers in Illinois; or
• 200 or more separate sales of tangible personal property to purchasers in Illinois

Starting January 1, 2026, a remote seller will no longer establish Illinois sales tax nexus by meeting the 200-transactions threshold. Economic nexus will be based solely on whether a remote retailer meets the $100,000 sales threshold.

Businesses are responsible for knowing whether and when they establish economic nexus with Illinois. The law requires them to determine, on a quarterly basis, whether they met the remote retailer threshold during the preceding 12-month period.

Remote retailers that meet or exceed the $100,000 threshold are liable for all applicable state and local retailers’ occupation taxes administered by the Illinois Department of Revenue for the subsequent year. Nexus can be re-evaluated at the end of the one-year period.

If, at the end of the one-year period, a business determines it no longer meets the state’s criteria for economic nexus (i.e., it had less than $100,000 in cumulative gross receipts from sales of tangible personal property in Illinois during the preceding 12 months), it must resume quarterly monitoring of its sales in the state.

This threshold change applies to remote marketplace facilitators as well. Sales made through a registered marketplace do not count toward a marketplace seller’s economic nexus threshold.

From August 1, 2026, through October 31, 2026, Illinois will provide a remote retailer tax amnesty program for the period January 1, 2021, through June 30, 2026. 

To be eligible to participate in the tax amnesty program, a remote retailer must have had economic nexus with Illinois for all or part of the eligibility period (January 1, 2021–June 30, 2026) and be registered with the Illinois Department of Revenue. An “eligible transaction” is a sale of tangible personal property that occurred during the eligibility period and required shipment or delivery to an address in Illinois.

For eligible retailers that fulfill the terms of the tax amnesty, Illinois will not seek to collect any applicable interest or penalties on eligible transactions. That’s typically how tax amnesty programs work, though some states only waive the penalties, or a portion of the interest or penalties owed.

“By law, very few states allow their department of revenue to waive interest because of the time value of money,” explains Scott Peterson, VP of Government Relations at Avalara. “Amnesties are different because they are always created by law. Waiving interest is one of the criticisms of amnesties because the state regularly requires interest payments from normal taxpayers who are late or make a mistake.”

In a somewhat unusual twist, eligible retailers will pay and report a simplified retailers’ occupation tax rate. Ordinarily, a state requires businesses to pay the full amount of applicable state and local taxes due, at whatever rates generally apply under the law. Illinois does not generally offer a simplified retailers’ occupation tax rate.

The retailers’ occupation tax is a sales tax. Illinois has two separate but complementary taxes on the sale and use of tangible personal property: the retailers’ occupation tax and the use tax. See the Illinois Department of Revenue for more details.

What is the simplified retailers’ occupation tax rate?

Per HB 2755, the simplified retailers’ occupation tax rate is the combined state and average local retailers’ occupation tax rate imposed on remote retailers participating in the tax amnesty program. This is either:

• 9% of the gross receipts from sales of tangible personal property subject to the 6.25% state rate, or
• 1.75% for qualifying food and tangible personal property subject to the 1% state tax rate

No remote retailer is required to remit tax at a rate higher than 9% or 1.75%, as applicable — unless the retailer collected a higher tax rate during the eligible period then failed to remit the collected taxes. In that case, the retailer must remit whichever is greater: the simplified retailers’ occupation tax or the rate actually collected.

What are the reporting requirements?

Remote retailers participating in the tax amnesty program should report only statewide totals of the retailers’ occupation taxes remitted at the simplified retailers’ occupation tax rate, according to the bill. They’re not required to report any information related to the location of purchasers or the amount of their sales into a specific taxing jurisdiction.

This is quite different from what’s ordinarily required of remote retailers. Businesses that ship goods to locations in Illinois from locations outside the state must report the location of all sales into the state and the amount of sales made in each tax jurisdiction.

HB 2755 also requires the Illinois Department of Revenue to establish an amnesty program for all taxpayers owing any Illinois tax collected by the department. The last time Illinois offered such a broad tax amnesty was in 2019.

This tax amnesty program will run from October 1, 2025, through November 15, 2025, and apply to tax periods beginning after June 30, 2018, and before July 1, 2025. The department will abate and not seek to collect any applicable interest or penalties for qualifying taxpayers who fulfill the terms of the amnesty. 

Amnesty will also be offered for franchise tax and license fee liabilities for any tax period ending after June 30, 2019, and on or before June 30, 2025.

More details will be provided by the Illinois Department of Revenue prior to the start of the tax amnesty programs described above. 

If you think you may owe back taxes to Illinois or another state and aren’t quite sure what to do next, read Back taxes: How to know if you owe them, what can you do if you’re obligated to pay them.