On August 9, 2024, Illinois Governor J.B. Pritzker signed into law SB 3362, requiring retailers that are shipping goods to Illinois from a location outside of Illinois to administer sales tax on a destination basis, with general merchandise tax rates ranging from 6.25 percent to 11 percent. Currently, many out-of-state retailers are required to charge only 6.25 percent.
With this law change, retailers who ship or deliver goods from Illinois to an Illinois customer are required to continue to administer sales tax on an origination basis. But, if the seller ships from a location outside of Illinois, the sale is sourced on a destination basis. Thus, if a Chicago customer places an order with an Illinois retailer who ships from within the state, the customer may be properly charged Illinois sales tax as low as 6.25 percent. If the customer places the same order, but the retailer ships from outside of Illinois, the tax rate the retailer should charge is 10.25 percent.
There are already two petitions challenging the Illinois local sales tax regime that has been in place since January 1, 2021: PetMed Express, Inc. v. Ill. Dep't of Revenue, Ill. Tax Tribunal No. 23 TT 04, and Coast to Coast Computer Products, Inc. v. Ill. Dep't of Revenue, Ill. Tax Tribunal No. 24 TT 42. These petitions contest Illinois' current requirement that out-of-state retailers with no Illinois physical presence administer Illinois sales taxes on a destination basis, while Illinois-based retailers are required to administer sales tax on an origination basis. Now, with SB 3362, all out-of-state retailers―with or without an Illinois physical presence―are required to administer Illinois state and local tax on a destination basis, effective January 1, 2025.
Retailers located outside of Illinois will need to make a decision. Out-of-state retailers may decide to:
- Collect and remit Illinois sales tax on a destination basis, consistent with the law change;
- Invoice the customer the Illinois sales tax on a destination basis, but have the customer pay the local tax under protest and contest the tax pursuant to Illinois' Protest Monies Act; or
- Collect and remit the 6.25 percent tax only and risk an audit assessment, which the retailer could contest.
For More Information
If you have any questions about this Alert, please contact Adam P. Beckerink, C. Eric Fader, Dakota Newton, any of the attorneys in our Tax Group or 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.