Leveling the Playing Field for Illinois Retail Act
Illinois Will Require Online Marketplaces to Collect Sales Taxes for Out-of-State Sellers Starting in 2020
Illinois was quick to jump on the post-Wayfair bandwagon in requiring out-of-state businesses to start collecting sales taxes on purchases made by in-state customers. Now the state has gone a step further. On June 28, 2019, Illinois Gov. J. B. Pritzker signed into law Senate Bill 690, which impose new collection requirements on online marketplaces starting on July 1, 2020. SB 690 also directs Illinois officials to implement new automated systems to assist businesses in complying with the law.
Thresholds Set for Remote Retailers
SB 690, officially named the “Leveling the Playing Field for Illinois Retail Act” by the state legislature, says that a “remote retailer” must collect sales tax if its “gross receipts from the sales of tangible personal property to purchasers in Illinois are $100,000 or more,” or the retailer makes more than 200 separate sales transactions to Illinois buyers during the tax year. In this context, a remote retailer includes a business that facilitates transactions between a buyer and a third-party seller.
For example, if a small business in Oregon sells goods to Illinois customers through Etsy, then Etsy is considered the remote retailer and must take responsibility for collecting and remitting any applicable sales tax. As far as Illinois law is concerned, Etsy is the actual retailer as opposed to the third-party seller.
And while Etsy is obviously one of the larger online marketplaces, any platform whose total sales exceed the $100,000-or-200-transactions threshold meets the definition of remote retailer. This includes first-party sales made by the platform itself in addition to all third-party transactions.
The platform is also responsible for determining whether it meets the threshold. This determination must be made on the last day of the month for March, June, September, and December. If at each of these times the remote retailer made enough sales to meet or exceed the threshold during the preceding 12-month period, it must subsequently collect and remit sales taxes to Illinois for the following 12-month period.
The marketplace must also certify to its individual third-party sellers that it has assumed all responsibility for complying with Illinois sales tax rules.
For their part, third-party sellers must keep records of any sales they make to Illinois customers through an online marketplace starting no later than July 2020. But to reiterate, the third-party seller is not liable for collecting taxes on marketplace sales, and such sales will not count towards the third-party seller’s individual threshold under SB 690. So if our hypothetical Oregon retailer makes all of her Illinois sales through Etsy, as opposed to filling orders directly, she is not responsible for collecting or remitting any tax on her own.
New Regulations for Service Providers, Automated Systems, Coming by the End of the Year
SB 690 directs the Illinois Department of Revenue to “establish standards for the certification of certified service providers and certified automated systems” to assist out-of-state businesses in complying with their sales tax collection obligations.
A certified service provider (CSP) is a business authorized by the Department to “perform the remote retailer’s use and occupation tax functions,” while a certified automated system (CAS) is any software used by the State to perform sales tax calculations. The Department must adopt CSP and CAS regulations no later than December 31, 2019, and have the systems up-and-running by July 1, 2020.