Remote sellers will need to source sales tax based on delivery location, which may result in collecting more tax than an in-state retailer.
In the legislative session ending on June 2, 2019, the Illinois General Assembly made a number of major tax changes. Some of the changes will require a trailer bill for clarification, or the Illinois Department of Revenue will issue regulations with further interpretations.
Senate Bill 690
- ROT Sourcing Changed for Remote Sellers. The Retailers’ Occupation Tax (ROT), Illinois’ sales tax, is currently sourced by looking to where the “origin” of the sale occurred. Therefore, sales inside Illinois are subject to Illinois and local ROT based on the local sales location. Sales by remote sellers have not been subject to ROT but instead only subject to the Illinois Use Tax. And, since there are no local use taxes (except in Chicago), the tax rate was generally less than the tax rate for an in-state sale. The law change is that, while Illinois retailers continue to pay tax based on “origin,” remote sellers now pay the ROT and not the Use Tax. Remote sellers will need to source sales tax based on delivery location, which may result in collecting more tax than an in-state retailer. Remote sellers can avoid this increased tax by creating a physical presence in Illinois. Beginning on July 1, 2020, remote retailers must collect state and local ROT.
- New State Parking Tax. While many localities in Illinois have parking taxes, the state has now joined the fray by adding a new parking tax on any parking in Illinois. This state tax is in addition to existing local parking taxes. The tax rate is 6 percent for hourly, daily or weekly parking, and 9 percent for monthly parking. The tax has a number of conflicting provisions, so it likely will be modified before its effective date on January 1, 2020.
- Change in Trade-In Credit. Effective January 1, 2020, the sales tax exemption for traded-in property appears to be capped at $10,000 for cars, and eliminated for all other property. But this was not intended. The bill was supposed to cap the trade-in credit for cars and leave the trade-in credit untouched for other property. As a result, a trailer bill will likely be introduced this fall to clean up the language.
- Data Center Tax Exemption. A new income tax credit and sales tax exemption applies to investments in data centers in Illinois.
- Cigarette Tax. A state cigarette tax increase of $1 became effective July 1, 2019, on top of city and county taxes.
- Gaming Surcharge. A new income tax surcharge applies to the sale of gaming-related assets.
Senate Bill 689
- Use Tax Extension to Marketplace Facilitators. This was an extension of the Illinois Use Tax to marketplace facilitators/sellers to require them to pay Retailers’ Occupation Tax on behalf of their vendors. As remote sellers now are required to pay ROT (as noted above), this change actually conflicts with the change mandated in Senate Bill 690. Effective date is January 1, 2020.
- New Illinois Tax Amnesty. Another new amnesty in Illinois covers taxes owed from June 30, 2011, to July 1, 2018, for most taxes. The amnesty is effective from October 1, 2019, to November 15, 2019. Unlike previous amnesties, there is currently no penalty for not taking advantage of amnesty.
- The Phaseout of Illinois Franchise Tax. The Illinois Franchise Tax will be phased out over five years. It is a strange phaseout, so corporations should look at the terms closely. The phaseout starts for year 2020.
- Numerous New Income Tax Credits. A number of new credits and expansion of existing credits have been added, including EDGE Credit, Enterprise Zone Credit, High Impact Business Investment Credit and River Edge construction job credits.
- Expansion of Manufacturing Equipment Exemption. The bill also expanded the manufacturing equipment exemption to include production-related equipment. A review of the scope of this exemption should be done by any manufacturer in Illinois.
Senate Bill 1939
Effective July 1, 2019, the gasoline tax in Illinois increased to 38 cents. This also increased the tax on diesel fuel and various registration fees.
Senate Bill 687
This bill proposed increasing the Illinois income tax to a graduated personal income tax with a high rate of 7.99 percent and corporate rate of 10.49 percent with the Illinois Personal Property Tax Replacement Income Tax. However, this becomes effective only if the 2020 ballot referendum is passed by voters.
House Bill 1438
This bill puts into place new cannabis legalization legislation and a new 7 percent tax on cultivators.
Senate Bill 1515
This bill changes how income is taxed for employees in Illinois, with nonresidents being taxed on their wages and earnings if they work more than 30 days in Illinois. On the other hand, Illinois residents will be able to exclude other state taxes on earnings and wages for work in other states even if their base of operations is in Illinois.
For Further Information
If you would like more information on how this may affect your company, please contact Stanley R. Kaminski, any other member of the State and Local Tax Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.