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State of Illinois Implements Economic Nexus for Sales Tax

Contributors: Barry Burchel, Partner, Tax & Business Services & Paul Graney, State & Local Tax Leader

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In light of the Supreme Court’s ruling in South Dakota v. Wayfair (Wayfair), Illinois joins a growing number of states that are set to expand sales tax collection obligations on out-of-state sellers.

Illinois Governor Bruce Rauner signed the FY2019 Budget Implementation Act on June 4, 2018, which included expanded definitions of “maintaining a place of business in the state” to incorporate economic nexus standards under the Illinois Use Tax Act and Illinois Service Use Tax Act. The legislative changes are consistent with the high court’s ruling in favor of South Dakota, which effectively overturned a decades old physical presence requirement for purposes of establishing sales tax nexus. That precedent had previously limited a state’s ability to impose a sales tax collection obligation on sellers to only those with a physical presence in their state.

Effective October 1, 2018, Illinois will impose a sales tax collection obligation on retailers or service providers that transfer tangible property or provide taxable services with either:

  • Gross receipts of $100,000 or more from purchasers in Illinois, or
  • 200 or more separate transactions with purchasers in Illinois in the preceding 12 months.

Sellers will determine their collection obligations on a quarterly basis ending on the last day of March, June, September, and December. If either sales threshold is met for the preceding 12-month period, the seller will have a filing requirement and will be obligated to collect and remit tax for one year. At the end of the required one-year filing period, the seller will again determine whether it has met either sales threshold for the preceding 12-month period. If a threshold has been met, the seller must continue to collect and remit tax. If a threshold has not been met, the seller is not required to collect tax, but is required to continually reevaluate its tax collection obligation on a quarterly basis.

Illinois is set to quickly implement its new economic nexus standards for sales tax due to its anticipation of the Supreme Court’s ruling during its budgetary process. Many other states have been proactively planning for a favorable ruling, so the coming months will be filled with continuing developments.

Please contact your Marcum tax professional to address any questions regarding this case.

 
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