WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in Illinois is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in Illinois include physical property, like furniture, home appliances, and motor vehicles.
Illinois charges a reduced rate on both prescription and non-prescription medicine as well as groceries.
The Illinois Department of Revenue has also published a comprehensive guide to sales tax exemptions and exclusions.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Illinois State does not require businesses to collect sales tax on the sale of digital goods or services.
HOW TO REGISTER FOR ILLINOIS SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Business name
- Business entity type
- Description of business activities
- Date business activities began or will begin
- Business address and mailing address
- Business contact information
- The North American Industry Classification System (NAICS) code that best matches your business
- Federal Employer Identification Number (FEIN)
- Your name, Social Security Number (SSN), driver’s license number, personal address, and personal contact information of owner/sole proprietor
- List of business officers, partners, managing members, and/or trustees
- Employment information (date of hire, number of employees, payroll amounts, payroll agent’s PTIN, if applicable)
Illinois requires that any seller with a sales tax permit file a sales tax return on your due date even if you don’t have any sales tax to report or pay.
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on-site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Rockford, Illinois. Since books are taxable in the state of Illinois, Mary charges her customers a flat-rate sales tax of 8.25% on all sales. This includes Illinois’s sales tax rate of 6.25%, Winnebago county’s sales tax rate of 1%, and Rockford’s city tax rate of 1.0%.
The state of Illinois follows what is known as an origin-based sales tax policy. This means that long-distance sales within Illinois are taxed according to the address of the buyer. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Chicago, Illinois. A customer living in Urbana, Illinois finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 6.25% state tax rate for Illinois, plus 1.75% for Cook county, 1.25% for Chicago’s city tax rate, and 1.0% for the district tax rate. At a total sales tax rate of 10.25%, the total cost is $385.88 ($35.88 sales tax).
Illinois businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your Illinois seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
Illinois requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
- Annual filing: If your business collects less than $50 in sales tax per month then your business should file returns on an annual basis.
- Quarterly filing: If your business collects between $50 and $200 in sales tax per month then your business should file returns on a quarterly basis.
- Monthly filing: If your business collects more than $200 in sales tax per month then your business should file returns on a monthly basis.
Note: Illinois requires you to file a sales tax return even if you have no sales tax to report.
All Illinois sales tax return deadlines fall on the 20th day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day. Below is a list of this year’s filing deadlines:
Annual filing: January 20, 2020
- Q1 (Jan. - Mar.): April 20
- Q2 (April - June): July 20
- Q3 (July - Sept.): October 22
- Q4 (Oct. - Dec.): January 22
Monthly filing: The 20th of the following month, or the next business day, e.g. April 20th for the month of March, or May 22th for the month of April.
For a complete list of deadlines, check out the Tax Filing Calendar on the Illinois Department of Revenue website.
Penalties for Late Filing
Illinois charges a late filing penalty of 2% of the original tax if the filing date is within 30 days of the filing deadline. If you do not file a return within 30 days after receiving a notice of non-filing, an additional penalty will be imposed equal to the greater of $250 or 2% of the tax shown due on the return without regard to timely payments. The penalty cannot exceed $5000.
Illinois also charges a late payment penalty that is equal to 2% if the time of payment falls between 1-30 days after the deadline. After 30 days, the rate increases to 10% of the unpaid tax shown on the original tax return. If your company is audited for unpaid sales tax, the interest penalty increases to 15%, and if your company continues to delay the rate can rise to 20% of the total unpaid sales tax.
Illinois Helpful Resources
Illinois Department of Revenue Helpline: