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Illinois Letter Ruling: Schools Must Collect Sales Tax


In the Internet sales tax debate, it is always brought up that the Internet retailer has unfair advantage over the brick-and-mortar retailer because they do not collect and remit sales tax. Internet retailers are not the only target for that concern. According to a recent Illinois Department of Revenue General Information Letter (ST 12-0003-GIL), the law is written to also “…ensure that governmental units do not have a competitive advantage when selling items that are also sold by Illinois retailers. The Illinois General Assembly did not intend to give government a competitive selling advantage over Illinois citizens.”

In the past, school districts and private schools had been allowed to sell books and educational supplies to students tax-free. However, retailers “…who were adversely affected by that regulation filed a lawsuit and the regulation was voided by the Illinois Supreme Court. Follett’s Illinois Book and Supply Store, Inc. v. Isaacs, Director of Revenue, 27 Ill. 2d 600, 19 NE 2d 324 (1963).”

To accommodate this decision, the law was rewritten to require school districts that sell books to the students on a conditional basis (with the option to sell the book back at a bargain price at the end of the year) to collect and remit sales tax on those purchases. However, if the school implements a fee that is part of registration to cover the cost of books, then that fee is currently not taxable. Also, if they lease or rent the books with “…no purchase option by the lessee at the end of the lease term, or a purchase option for the fair market value of the leased item at the end of the lease term,” then they are not considered a retailer for sales tax purposes. Illinois currently does not apply sales tax to rental receipts under true leases.

To read the General Information Letter, visit http://www.tax.illinois.gov.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Susan McLain
Avalara Author Susan McLain
Susan McLain began her career as a technical writer in technology industries such as satellite networking and medical devices. Her skills encompass technical and marketing writing, usability engineering, verification and validation testing and protocol writing, requirements development, business analysis, technical illustration/graphic design and marketing. She has owned her own business providing service to small to medium sized business and in other positions, she has been in project management, documentation and marketing. She is currently the content specialist for Avalara helping to “make sales tax less taxing.”