Illinois to tax out-of-state sellers starting October 2018
- June 7, 2018 | Gail Cole
The Illinois Legislature included an economic nexus provision in its FY 2019 budget, which Governor Bruce Rauner signed June 4, 2018. Beginning October 1, 2018, out-of-state sellers that make retail sales of tangible personal property or services in Illinois and meet one of the de minimus thresholds will be required to collect and remit tax on their Illinois sales.
An out-of-state retailer must assume tax collection responsibilities if it meets either the gross receipts threshold or the sales transaction threshold in the preceding 12 months. The retailer must:
- Have cumulative gross receipts from sales of tangible personal property or services in Illinois of $100,000 or more; or
- Make 200 or more separate sales transactions of tangible personal property or services to purchasers in Illinois.
A retailer must determine quarterly, on the last day of the quarter, whether one of the criteria has been met. If so, the retailer must register with the state and collect and remit the tax for a period of one year, after which the retailer must again assess whether the criteria have been met.
If, after one year of collecting and remitting taxes, the retailer determines that it no longer meets one of the thresholds, it must resume quarterly review of its Illinois sales.
What will the Supreme Court say?
The Supreme Court of the United States is unlikely to say much about Illinois’ new law at this point, since it isn’t on its docket. However, Illinois’ economic nexus threshold of $100,000 or 200 sales is the same as South Dakota’s economic nexus threshold, which is currently under review in the Supreme Court. (The laws also have their differences. For example, South Dakota specifies, “No obligation to remit the sales tax required by this Act may be applied retroactively.” The Illinois measure includes no such provision).
Precedent holds that a state may not impose a tax collection obligation on a business that doesn’t have a physical presence in the state. Taxing a business that lacks physical presence nexus contradicts the Supreme Court’s ruling in Quill Corp. v. North Dakota (1992).
South Dakota’s economic nexus law is a direct challenge to Quill. It states, “Given the urgent need for the Supreme Court of the United States to reconsider this doctrine [Quill], it is necessary for this state to pass this law clarifying its immediate intent to require collection of sales taxes by remote sellers, and permitting the most expeditious possible review of the constitutionality of this law.” The state’s tactic worked: The court heard oral arguments for South Dakota v. Wayfair, Inc. on April 17, 2018.
Depending on how the court rules, South Dakota could be granted the authority to enforce its law, or prohibited from enforcing it, or something else altogether. No one will know until the court issues its decision, which is expected sometime in June.