Should you collect sales tax in Illinois?
Sales tax is levied on retail sales to your customers, including leasing or renting tangible personal property. However, you will collect the sales tax if you determine the nexus in Illinois. A nexus is a presence that may come physically or economically.
A physical nexus is typically created when your business has a store, warehouse, or any office location in Illinois. An economic nexus is intertwined when you cross paths with threshold limits as already stipulated by the state. These thresholds can be on revenue or some other transactional basis.
Let’s explore if your business has a Physical nexus in Illinois.
A physical nexus is integrated when your business is engaged in the following in Illinois:
- Servicing tangible personal property in Illinois.
- Maintaining, occupying, or using a place of business or an office in Illinois.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- We have a stock of goods in Illinois.
Is it constituting an Economic nexus in Illinois?
Suppose you are a remote seller (i.e., one who doesn’t have a physical presence in the state), and your business sales in Illinois exceed $100,000, or the number of transactions exceeds 200 during the current or previous calendar year. In that case, you must comply with and register under sales tax rules.
You may also refer to the Illinois Revenue Department advisory to learn more about business activities that may create an economic nexus within the state.
How can you Register for Sales tax in Illinois?
To get a state sales tax permit, you can apply online through the MyTax Illinois portal. Your application will generally be processed in 1-2 days.
Alternatively, you can complete the REG-1 form and mail it to the address indicated or submit it in person by visiting the department office.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- FEIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Illinois.
- Contact information.
- Nature of business.
- Business locations.
Is your product or services liable to Sales tax in Illinois?
Tangible Property: Sales tax in Illinois is imposed primarily on the retail sale of tangible personal property, such as furniture, giftware, toys, etc.
Services: Services are generally not chargeable to sales tax in Illinois except otherwise stated. However, some services, such as utilities, personal care, telecom, television, and radio, are chargeable to sales tax.
Digital Product: Illinois charges sales tax on digital products such as software, streaming services, e-books, etc. Here is the guidance issued by the state on taxability of digital goods.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. It is non-taxable in Illinois. For official guidance, please click here.
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, newspapers/ magazines, manufacturing equipment, etc. To see what exemptions are covered, please click here.
You can read further by visiting the department website to know exactly what’s included in your list of items bound to pay sales tax.
How should you collect and calculate state taxes in Illinois?
Collecting and computing accurate sales tax to be remitted to the state may not involve those boisterous efforts. The sales tax is origin-based in Illinois, which means you must collect taxes at the rate where your business is located. However, if you are not based in Illinois and create a business relationship through economic nexus in the state, you’ll have to collect and remit the sales tax.
Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Illinois has a base sales tax rate of 6.25%, followed by the local tax rates, which vary based on the city and municipality. You may visit the tax rate table page on the Illinois Department of Revenue website.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6.25% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
If non-taxable items are sold, shipping charges associated with such a sale are not subject to sales tax. However, when a sale includes both taxable and non-taxable items, shipping charges need to be apportioned relatively between the taxable and non-taxable parts of the sale, and accordingly, sales tax is applicable to the taxable portion of the sale. Furthermore, it is worth noting that shipping charges are taxable when they are separately stated over the invoice but the seller does not offer the purchaser an option to receive the property in any manner except by the payment of transportation and delivery charges added to the selling price of the item. Refer here for the official guidance issued by the state.
How should you file sales tax in Illinois?
E-file: You can file your return online through the MyTax Illinois portal. You can file your return using ST-44 if not required to register for sales and use tax. Paper filing is also possible using the ST-1 form and mailing it to the address indicated therein.
Sales tax payments can also be made using MyTax Illinois. The state accepts checks, money orders, ACH, and EFT payments. Please note that you must pay the tax electronically when your annual tax liability is $20,000 or more. Click here for more concise guidance.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the state assigns you a filing frequency, which can be Monthly, Quarterly, or Annual. According to your filing frequency, the due date for filing sales tax would be the 20th day of the month following the relevant reporting period.
Note: If the due date happens to be a holiday or weekend, the next business day will be considered the final due date. This link will take you to the official website of the Illinois Revenue Department, where you can see what the state has to say about sales tax filings.
Are there any fines or penalties for default in filing or paying sales tax?
If you fail to file or pay the sales tax within the due dates, the state levies a penalty of 2%- 10%, depending on the nature of the default.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. The state issued a detailed guide on penalties and interest to resolve all your queries. You can read the guidance here.
Sales tax holiday in Illinois
The Illinois sales tax holiday applies to retail sales of groceries and back-to-school items. It requires sellers to charge the sales tax at reduced rates. For detailed information on the sales tax holiday, refer to the Illinois Revenue Department advisory here.