Illinois further complicates tax compliance for wineries
- Dec 8, 2020 | Gail Cole
Illinois is leveling the playing field for out-of-state and in-state sellers. Starting January 1, 2021, there will be new local sales tax collection obligations for out-of-state Winery Shipper’s License holders that have economic nexus with Illinois and no physical presence in the state.
Currently, out-of-state wineries can sell directly to consumers (DTC) in Illinois after obtaining a Winery Shipper’s License from the Liquor Control Commission (ILCC) and a use tax permit from the Department of Revenue (IDOR). Winery Shipper’s Licensees must collect the state use tax (6.25%) on all sales delivered into the state, along with applicable excise taxes, and can ship up to 12 cases per person per calendar year.
For the most part, wineries with no physical presence in the state aren’t required to collect local tax on DTC shipments into the state. However, as of July 1, 2020, in-state and out-of-state wineries must collect Chicago liquor tax on all wine shipped directly to consumers with a Chicago address.
Economic nexus for out-of-state wineries
The state’s economic nexus law, which took effect October 1, 2018, doesn’t apply to out-of-state wineries through December 31, 2020. Starting January 1, 2021, it does.
An out-of-state winery establishes economic nexus on and after January 1 if it meets one of the following thresholds in the preceding 12-month period:
- $100,000 or more in cumulative gross receipts from sales of tangible personal property to purchasers in Illinois; or
- 200 or more separate transactions of tangible personal property to purchasers in the state.
Economic nexus doesn’t apply to out-of-state wineries with a physical presence in Illinois, such as a distribution house, office, sales house, or warehouse, or agents or subsidiaries in the state either temporarily or permanently.
Compliance changes for wineries with economic nexus
Out-of-state wineries with no physical presence in Illinois that determine they’re over either economic nexus threshold will have a different set of compliance requirements than those without economic nexus. For example, they must:
Update their registration with IDOR by going into their MyTax Illinois account, clicking on Register for New Tax Accounts, then selecting Retailer to complete the registration for retailers’ occupation tax (ROT).
Use a new form (ST-2) to report and remit ROT taxes on local sales in 2021.
Out-of-state wineries to collect local sales tax due on direct wine shipments
Beginning January 1, 2021, out-of-state wineries that hold a Winery Shipper’s License and have economic nexus with Illinois must collect the state and local ROT rate in effect at the location where the consumer takes possession of the shipment (i.e., the delivery address) — not Illinois use tax. More information about forthcoming changes in Illinois and the difference between ROT and use tax can be found here.
This change does not apply to out-of-state Winery Shipper’s License holders with sales below the $100,000 sales/200 transactions thresholds. Such wineries will continue to collect the 6.25% use tax and applicable excise taxes, but no local taxes (aside from the Chicago liquor tax, when applicable).
The Illinois Department of Revenue suggests out-of-state wineries with no physical presence in the state and no economic nexus monitor their sales to Illinois consumers. At the end of each quarter, they should determine whether they’ve met the economic nexus threshold during the preceding 12-month period. Those that have must start collecting state and local ROT on the first day of the quarter immediately following the end of the 12-month lookback period.
The new economic nexus provisions don’t affect the Illinois Liquor Gallonage Tax. All wineries making DTC sales in Illinois are liable for this tax.
Wineries holding a Winery Shipper’s License are responsible for ensuring Illinois tax requirements are met, even if the winery uses a third-party provider to ship wine to Illinois consumers.
Avalara for Beverage Alcohol can help wineries meet tax compliance obligations in Illinois. Local tax jurisdictions in Illinois may be subject to custom boundaries and therefore often don’t align with city, county, or ZIP code lookup tables. Since Avalara AvaTax accounts for these custom boundaries, it simplifies and improves tax compliance.