insight magazine

Tax Decoded | Fall 2019

Illinois’ Incomprehensible Sales Tax Law

A post-Wayfair fix for leveling the playing field between online and brick-and-mortar retailers has made Illinois sales tax more unbalanced.
Keith Staats, JD Executive Director, Illinois Chamber Tax Institute

During the spring legislative session, the Illinois General Assembly accomplished the seemingly impossible, it passed substantial legislation—SB 689 (P.A. 101-0009) and SB 690 (P.A. 101-0031)—that makes Illinois sales tax law even more confusing and incomprehensible.


Here’s some background and context to help us decode this. The Retailers’ Occupation Tax (ROT) is imposed on Illinois sellers of tangible personal property. The state tax rate is 6.25 percent, and the law authorizes additional locally imposed ROTs. Currently, the applicable tax rate is the combination of state and locally imposed taxes in effect at the selling location—origin sourcing. A Use Tax (UT) is imposed on purchasers of tangible personal property at a rate of 6.25 percent. The UT is either paid by a purchaser to a retailer, or if a purchase is made from a retailer who is not required to collect tax (out-of-state retailers without nexus), the purchaser is required to pay the tax directly to the Illinois Department of Revenue (IDOR). There are no locally imposed UTs with the exception of the City of Chicago use tax.

Last year, in Wayfair v. South Dakota, the U.S. Supreme Court changed the rules on sales tax nexus. Prior to Wayfair, the U.S. Supreme Court ruled in Quill v. North Dakota that a retailer was required to have a physical presence in a state for that state to require the retailer to collect that state’s sales taxes from customers. In its Wayfair decision, the U.S. Supreme Court eliminated the physical presence requirement of Quill and upheld a South Dakota law establishing nexus over retailers with certain levels of economic presence in the form of sales in the state, even absent a physical presence.

Anticipating elimination of the physical nexus requirement, Illinois enacted legislation effective Oct. 1, 2018 mirroring South Dakota’s nexus standards—any out-of-state seller with more than $100,000 in sales or more than 200 separate sales transactions into the state over the course of a year has nexus with Illinois and is required to charge the state’s 6.25 percent UT.


One of the arguments for eliminating the Quill physical presence nexus requirement was that it would “level the playing field” between brick-and-mortar retailers and their online competitors. Prior to Wayfair, online retailers without physical presence in Illinois that were not required to charge Illinois sales tax to their Illinois customers had a significant price advantage over brick-and-mortar retailers.

However, Illinois’ move to eliminate the physical presence requirement and establish an economic nexus test lessened, but did not eliminate, the pricing advantage enjoyed by online retailers. For example, if an online retailer meets the economic nexus test under the 2018 Illinois law, that retailer is now required to charge the 6.25 percent UT on sales into Illinois. The same sale at a local brick-and-mortar retailer would have to charge the 6.25 percent UT plus all locally imposed taxes, or 9.75 percent currently in Springfield. What’s more, online purchases from small sellers—those below the $100,000 or 200 transactions thresholds—remained sales-tax free at the time of the sale. Purchasers remain required to self-assess and pay the UT but as a practical matter most individuals do not comply with this requirement.

IDOR didn’t wait long to address the lack of tax on sales by certain small retailers. During the spring 2019 legislative session, IDOR proposed legislation as a portion of SB 689 to establish nexus at the marketplace facilitator level (e.g. Amazon, eBay, or Etsy) rather than based on the sales of each individual seller utilizing such online marketplaces. SB 689 provides that if the aggregate sales on the marketplace facilitator’s platform exceed the statutory nexus threshold—$100,000 in sales or 200 transactions—all sellers on that marketplace platform are required to charge and collect Illinois sales tax.

While SB 689’s changes expand Illinois UT collections on sales, they fail to completely level the playing field between online and brick-and-mortar retailers. The same item that I buy from a small online marketplace seller will be subject to only a 6.25 percent UT versus my local 9.75 percent sales tax rate.

Enter SB 690 containing the Level the Playing Field for Illinois Retail Act. This legislation as enacted over the opposition of IDOR is flawed, does not “level the playing field,” is inconsistent with SB 689, is likely not administrable by IDOR, and is likely unconstitutional.


SB 690 provides for three categories of retailers: (1) “Remote retailers” who have no physical presence but have economic nexus under the post-Wayfair Illinois nexus standard; (2) out-of-state retailers who do not have brick-and-mortar locations in Illinois but have some sort of pre-Wayfair “physical presence” nexus within the state; and (3) retailers with a brick-and-mortar presence in Illinois who may also have an online presence.

Under SB 690, remote retailers are subject to state and local ROTs on their sales to Illinois customers. This is a bizarre concept since these sellers are, by definition, not located in Illinois and have no Illinois brick-and-mortar presence—the fundamental requirement of being subject to the ROT prior to this legislation. In addition, remote retailers are required to determine the tax rate on sales to their Illinois customers based on the combined state and local tax rate at their customers’ locations, or more simply, destination sourcing. The use of destination sourcing is contrary to the treatment of brick-and- mortar sellers who are required to use origin-based sourcing—the combined state and local tax rate in effect at the location of the sale.

The second category of sellers—out-of-state sellers without Illinois brick-and-mortar locations who have traditional physical presence nexus—continue to charge and collect the state’s 6.25 percent UT on sales to their Illinois customers, except when the sales are fulfilled from inventory in a warehouse in Illinois, in which case they charge the combined state and local ROT rate in effect at the location of the warehouse. For example, if I buy an item from Amazon and it ships from their Kenosha, Wis. warehouse, I am charged 6.25 percent, but if the same item ships from their Joliet, Ill. warehouse, I am charged the tax rate in effect in Joliet. This tax treatment is the same as current law.

The third category of sellers—retailers with a brick-and-mortar presence in Illinois who may also have an online presence—charge the combined state and local tax rate in effect at their brick-and-mortar location. They use origin-based sourcing and continue to do so if selling online on their own platform or through a marketplace facilitator.


Combining SB 689 and SB 690 results in several different tax treatments of a sale. Let’s say I decide to purchase a new printer for my office:

1. If the purchase is made from an online seller without a physical connection to Illinois through a marketplace like Amazon, I am charged Illinois’ 6.25 percent UT.

2. If the purchase is made from an online seller without a physical connection to Illinois that also doesn’t meet the $100,000 or 200 transactions nexus, I am not charged any Illinois sales tax.

3. If the purchase is made from an online seller without a physical connection to Illinois but exceeds the $100,000 or 200 transactions nexus test, and I have the printer delivered to my home, I am charged the ROT of 7.25 percent in effect at my home in suburban Springfield. If the same purchase is delivered to my Springfield office, the tax rate increases to 9.75 percent.

4. If the purchase is made online from a retailer with a physical connection to Illinois but who doesn’t have a brick-and-mortar store and doesn’t ship the printer from an Illinois warehouse, I am charged Illinois’ 6.25 percent UT.

5. If the purchase is made online from the same retailer as in example 4, but in this instance the printer is shipped from a warehouse in Joliet, I am charged the 8.75 percent ROT in effect in Joliet.

6. If the purchase is made over the counter at a retailer in Springfield, I am charged Springfield’s 9.75 percent tax rate.

7. If the purchase is made online from a brick-and-mortar retailer located in the City of Chicago, I am charged Chicago’s 10.25 percent tax rate.

That was a long-winded way of saying the enacted legislation does little to level the playing field. It just makes Illinois’ historically convoluted and confusing tax system even more convoluted and confusing. It will also encourage strategic tax planning by both retailers and consumers. Here are two obvious examples:

First, any remote retailer would be wise to establish some type of physical connection to Illinois to eliminate its remote retailer status and convert its tax collection status from ROT to UT. According to the nexus definition in the legislation, remote retailer status can be changed by simply sending an agent into Illinois periodically, thus establishing physical presence for sales tax purposes.

Second, purchasers located in high sales tax rate jurisdictions will be wise to not make purchases from remote retailers to minimize the amount of taxes due on purchases.

Finally, I haven’t even attempted to address what appear to be constitutional problems with the legislation. The uniformity clause in Article IX, Section 2 of the Illinois Constitution provides that “in any law classifying the subject or objects of non-property taxes or fees, the classes shall be reasonable and the subjects and objects within each class shall be taxed uniformly.” I don’t see how this legislation withstands a constitutional challenge.

I’ve heard there will be an attempt to “fix” this legislation in the fall veto session. All I know at this juncture is that there is no easy fix.


Leave a comment
  1. Thavy | Jan 13, 2021
    For the retailers who does have a presence locally in the state of IL will have to somehow foot the bill for ROT because there is no way for the facilitators to adjust/collect the ROT for us. This makes zero sense & puts a huge burden for those of us who aren't even pulling near $100K. So much for the excitement facilitators remitting tax on our behalf.
  2. erte | Nov 09, 2020
  3. LillyD | Jan 10, 2020
    Keith believes SB 119 made things more complicated. See his follow up column:
  4. Alex Samuel | Jan 06, 2020
    Excellent article. Did SB 119 solve some of these issues?
  5. Sandy Morgan | Jan 03, 2020
    Great article explaining the absolutely ludicrous law that has been enacted in Illinois (and 43 states since the Wayfair decision), creating more than an "undue burden" on many of my clients.   I am in the process of contacting organizations such as the Tax Federation, and have even contacted attorneys (most of which think I'm crazy) to at least attempt to stop this madness.  
  6. Robert | Jan 03, 2020
    Thank you, well explained article. The company I work for is an out of state Amazon seller and Amazon is not yet able to calculate the ROT for us, so basically instead of Marketplace legislation being a relief for tax compliance for sellers it will become more complex. 
  7. Tommy | Jan 01, 2020

    There is another confusing issue around the third category of sellers—retailers with a brick-and-mortar presence in Illinois who may also have an online presence.

    The Marketplace will collect and remit the Use Tax in this scenario, but the Illinois retailer has to somehow collect and remit the additional local ROT portion.  Which not only is dumb, but, the marketplace handles all aspects of the payment and there may be no system in place to collect an additional sales tax for the seller in addition to the Use Tax for the marketplace.  The largest marketplace sent a notice to Illinois retailers that the marketplace will collect and remit the Use Tax, but does not have the technological infrastructure to collect the additional local ROT which means that Illinois retailers are on the hook to remit the local ROT without the ability to collect it.  The marketplace built their infrastructure to collect and remit a sales tax based on a single sales tax rate for a given tax district, they did not anticipate the requirement to collect an additional tax and remit that separate collection to a third party for remittance to the state.

  8. Thomas R. Henderson | Sep 27, 2019
    Great explanation.

    Leave a comment