|
ILLINOIS
RESIDENTS WILL PAY ADDITIONAL ONLINE SALES TAX STARTING OCT. 1
Illinois Policy Institute/
Adam Schuster
As a result of the U.S. Supreme Court’s
decision in South Dakota v. Wayfair Inc., most online purchases in
Illinois will now be subject to automatic collection of the state’s 6.25
percent use tax.
|
|
 Illinoisans should prepare to pay more for online purchases
from out-of-state retailers.
The U.S. Supreme Court’s recent decision in South Dakota v. Wayfair Inc. is
projected to increase revenue to the Illinois state budget by $140 million this
year. As a result of the decision, and a change in Illinois law passed with this
year’s budget bill, most out-of-state retailers who sell to Illinois customers
will be required to collect and remit a “use tax” of 6.25 percent on all online
transactions starting Oct. 1.
Technically, Illinoisans are already required to pay the use tax – an
alternative to the sales tax paid on transactions at brick-and-mortar retailers
– on online transactions. However, not many do. And under Supreme Court
precedent established in 1992 in Quill Corp. v. North Dakota, only businesses
with a physical presence in the state were required to collect sales taxes for
online purchases.
 Therefore, in practice, many online purchases from out-of-state retailers were
free from state taxation. Proponents of the Wayfair decision believe that Quill
created an unfair advantage for online retailers over brick-and-mortar stores.
The Illinois General Assembly changed the requirements under which companies
must collect and remit the use tax in the fiscal year 2019 budget implementation
bill. Anticipating the outcome of Wayfair, Illinois’ requirements now mirror
those of South Dakota. All businesses with over $100,000 of online sales in
Illinois, or at least 200 discrete transactions, are required to collect the tax
on all purchases.
The new rules take effect Oct. 1. The Illinois Department of Revenue estimates
the stricter collections requirements will generate an additional $200 million
in sales tax collections annually. Because the rules are not in effect for all
of fiscal year 2019 – which goes from July 1, 2018, to June 30, 2019 – the
estimate for the first year of collections is $140 million.
[to top of second column] |
However, some uncertainty around this new tax
remains.
A bill introduced in the U.S Congress by Wisconsin Republican Jim
Sensenbrenner would delay implementation until Jan. 1, 2019, and
would also restrict the businesses subject to collection
requirements to those that generate more than $10 million in annual
U.S. e-commerce sales. Both changes would likely reduce the amount
of revenue Illinois could raise this year.
New federal restrictions on states’ collection of online sales taxes
would put another hole in Illinois’ fiscal year 2019 budget, which
is already as much as $1.5 billion out of balance due to its
reliance on budget gimmicks and structural overspending.
Sensenbrenner’s bill, which is co-sponsored by two Democrats,
according to Reuters, also calls on states to create interstate
agreements that simplify sales tax collections for out-of-state
online retailers.
South Dakota’s participation in the Streamlined Sales and Use Tax
Agreement, or SSUTA, was cited as a positive factor by the Supreme
Court in Wayfair. The SSUTA, which currently has 23 full member
states, simplifies online sales tax collections by creating uniform
rules and processes for compliance. Illinois is not a member.
While the exact timing and scope of the change remains somewhat
uncertain, one thing is clear: Illinoisans will soon be paying taxes
on more online purchases. Unfortunately, the Illinois General
Assembly has already planned to spend this money rather than using
it to pay down debt or repeal other harmful taxes.
Click here to respond to the editor about this article |
