Illinois Sales Tax Explained | Rates, Forms, Registration, and More

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0:54 What changed on January 1

We have so many clients that file in Illinois, and with the recent change that started on January 1st of this year, we had to do so much change to our existing process to accommodate for the new change.

So the new change that was effective this January 1st, 2021, was that for remote sellers that do not have a physical presence in Illinois, an FBA warehouse does not count as physical presence. So if you sell on Amazon and you use FBA warehouse in Illinois, you're still considered a remote seller.

So remote sellers, which includes Amazon FBA sellers, instead of being able to file the use tax return for sales for Illinois and collect everything at 6.25, they are requiring all the remote sellers to switch over to collecting retailers' occupational tax, which is a destination based tax. And you have to collect at both the state level as well as the local level. The state level is the same as before and 6.25, but now you have the added burden of collecting at the local level as well.

1:55

So remote sellers, we had to do two things for them starting at the beginning of this year. First is to switch over their account from a use tax account to retailers' occupational tax account. So then the second part is they will have the form to fill out the return. Instead of only filing ST-1, now they need to file ST-1 as well as ST-2.

2:44 The food truck logic

And let me give you a little background on this switch. The whole idea behind this is Illinois wants to level the playing field for in-state and out-of-state sellers.

So the in-state sellers that have a physical presence in Illinois are already collecting both the use tax rate, the 6.25 rate, as well as the local rate. But remote sellers did not have this responsibility before. So to level the playing field, now Illinois is asking remote sellers to collect at the state level as well as the local jurisdiction as well.

And their logic behind this is so funny. I called Illinois Department of Revenue last week and I talked to an agent for probably an hour to ask him what's the logic behind asking all the remote sellers to collect at the destination based rate instead of just the 6.25 rate across the board. It'll make it so much simpler and easier for remote sellers to manage.

3:49

And their response is, the way they think about it is, instead of thinking of your remote selling business as a pure remote seller that does everything through the internet, imagine your business as a traveling food truck. And it travels to location A to deliver products to customer A, and it travels to location B to deliver products to customer B.

So when you actually have a customer in location A or B, and imagine your business as a traveling food truck, you are creating physical presence in location A and B. That's why you need to collect sales tax effectively at location A and B. So that both includes the 6.25 as well as the local jurisdiction's different rate depending on where you are.

So which means, in Illinois' eyes, for all the remote sellers, every transaction you sell, every transaction is like a little food truck that's traveling around the state. Where it stops is the customer's location, and you collect the rate at that location, which is retailers' occupational tax rate instead of the use tax rate.

So that makes things a lot more complicated. Now as a remote seller you have to track every single sale, to track its ship to address, to determine the rate, instead of just using the blanket 6.25 flat rate on all your sales.

5:29 Why you keep getting certificates

So this feeds into my next section, which I want to tell you why you're getting all these same registration certificates from Illinois. You're probably getting them either every week or at least once a month, and they all look the same to you.

The reason being, if you sell into a new location that you haven't been reporting in previous returns, they think that your little food truck opened a new location in Illinois. And traditionally when you have a brick and mortar store you need to display your sales tax license, and that's why their system just automatically generates a new license for you for that location. Except they don't really put a different location code, so there's no way for remote sellers to identify which location is this certificate for, and why. And that's why they feel like they're getting the same certificates every single time.

But you're not. The system tracks it. It's when you sell into a new location that you weren't selling to before.

6:43

So, and all of these, with Illinois, they renew every year. So it's safe to assume that you'll keep getting these mail from Illinois for indefinite amount of time. So just store them, document them, but don't worry about it, because you will keep getting them and there's no way to go around it.

So that's part two. Let me know if you have any questions in the comments. Let's stop here and take a breath, and then I want to dive into the form ST-1 and ST-2 and show you where you should be reporting your sales as a remote seller, what you need to do differently from the way you are doing it prior to the beginning of this year.

7:16 The ST-1 before the change

So let's dive in the form. What you're seeing right now is the ST-1 form for sales and use tax with Illinois Department of Revenue.

So usually before the switch that happened earlier this year, everything is reported, if you are a remote seller, everything is reported on 6a, sales from locations outside of Illinois. And usually if it's general merchandise, everything's taxed at 6.25. You put the rate here, you put your sales here, and it calculates the rate. Very simple.

This 6a number will need to match line one, but besides those two lines you don't really need to put that much information, unless you have like penalties and interests or credits, then you'll fill up step six.

But normally before 2021 you just need to put your number here on line one, put your number here on line 6a, everything's taxed at 6.25 percent, and it'll calculate the tax due on step six, and you'll remit that.

8:51 The ST-2 after the change

But now you have to do ST-2 instead of ST-1, where you report every location and then you put in the specific rate for that location.

So the example I was using, customer A, you'll put customer A's location on here, find out the rate. Let's say it's a ten dollar purchase at seven percent instead of six point two five, then it would be 76 that you owe here. And then location code B is going to be where your customer B lives, if it's a different location code. And then you put the amount of sales here, the rate of location B here, and it tells you what the net due amount is.

And all of this, as you can see, it corresponds to line 4b, or if you sell food and drugs then it's 5b. So it actually feeds back into 4b and 5b. So instead of filling out this part 6a for sales from locations outside of Illinois, it's sales from locations within Illinois. It's treating all of your remote sales as if you're driving those mobile food trucks to each location, so you have to collect at the rate at each location, and add up all the 4b and fill it up to right here.

So that makes it a lot more complicated. And Illinois is usually one of the states that we recommend using a software to help you keep track of all these locations.

10:44 Where to learn more

Okay, that was a lot of information in this video, but it's so important and I just want to share it with all of you. If you found it valuable, please like and share with your other ecommerce selling friends so they can get this information as well.

We're also in the process of our first launch of our sales tax course, and we have information like this for every single state. So if you're interested, I'm going to link it below so you can check it out and see if it's a good fit for you and your business.

I will also link below the Illinois Leveling the Playing Field Act, and it has a super nice flow chart. So if you're selling on the marketplace, or if you're only selling on your website, or a combination of the two, you can just follow the decision tree and it'll tell you what rate and what kind of account you should register, either the retailers' occupational tax account or use tax.

So let's meet in the comments. Let me know if you have any questions, and I hope you have a great day. Bye.