insight magazine

Tax Decoded | Summer 2022

Did Illinois’ Landmark Sales Tax Legislation Level the Field?

Reviewing the Leveling the Playing Field for Illinois Retail Act 18 months after passage shows its impact depends on which team is on the field.
Keith Staats, JD Executive Director, Illinois Chamber Tax Institute

In the wake of the U.S. Supreme Court’s 2019 decision in South Dakota v. Wayfair, Illinois passed its so-called Leveling the Playing Field for Illinois Retail Act and enacted P.A. 101-0031. I discussed the legislation specifics in two previous Insight columns, “Illinois’ Incomprehensible Sales Tax Law,” and “Oops, They Did It Again.” Those titles give away my feelings on the law but, in short, it contained sweeping changes to address the disparity between the sales tax rates charged by local brick-and-mortar retailers versus online and out-of-state sellers. Fully in effect for around 18 months now, I thought it was time to call a timeout to review how things are playing out.

From my view up in the commentator’s box, it looks like the intent of the act is being subverted in some instances. Here’s why.


Illinois’ Retailers’ Occupation Tax (ROT) is imposed on Illinois-based sellers of tangible personal property. The state tax rate is 6.25%, and the law authorizes additional locally imposed ROTs. That means the applicable tax rate for brick-and-mortar retailers in Illinois consists of a combination of state and locally imposed taxes in effect at the selling location— i.e., origin sourcing. A Use Tax (UT) may also be imposed on purchasers of tangible personal property at a rate of 6.25%. Currently, Chicago is the only city in Illinois to impose a local UT. Regardless, any applicable UT is either paid to the retailer by the purchaser, or if a purchase is made from a retailer who’s 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).

Prior to the Leveling the Playing Field legislation, out-of-state retailers with Illinois nexus were only required to charge and collect the 6.25% Illinois UT, giving them a price advantage over in-state brick-and-mortar retailers. The Leveling the Playing Field legislation was designed to address this disparity, but it does so in a confusing and, in my opinion, a constitutionally suspect manner.

The legislation originally established three retailer categories:

  1. Remote retailers with no physical presence in Illinois but economic nexus under the post-Wayfair nexus standard. These retailers are required to charge state and local ROTs to their Illinois customers with the local sales tax rate determined by the Illinois customer’s point of delivery.
  2. Out-of-state retailers without brick-and-mortar locations in Illinois but some sort of physical presence nexus. These retailers must charge their Illinois customers the state’s 6.25% UT or, if they fulfill orders from goods maintained at an Illinois location, the combined state and local ROTs in effect at the retailer’s fulfillment location.
  3. Retailers with a brick-and-mortar presence in Illinois who may also have an online presence. These retailers generally charge the combined state and local tax rate in effect at their brick-and-mortar location, with some exceptions.

And, there’s actually a fourth retailer category now: marketplace facilitators (i.e., Amazon, eBay, Etsy, etc.) and the third-party sellers who use their platforms. This category has its own level of complexity that couldn’t possibly be explored in this single column.


IDOR has done a good job of attempting to implement this complicated legislation. A detailed set of rules outlining the various factual permutations and resulting multiple tax results that can occur under the law was adopted, including a flowchart that illustrates the complexity of the law (see Part 131 - Leveling the Playing Field for Illinois Retail Act on IDOR’s website).

However, that said complexity has led to more creative tax planning by enterprising tax practitioners trying to subvert the avowed goal of the legislation—eliminating the tax rate disparity between brick-and-mortar and online retailers. Strategic tax planning can create a tax rate advantage for multistate brick-and-mortar retailers over those with only an Illinois presence.

Certain multistate retailers have concluded, based on the particular facts of their selling activities, that sales to their customers shouldn’t be sourced to their Illinois brick-and-mortar locations, which would be subject to Illinois’ combined state and local tax rates. Rather, they source their sales to non-Illinois locations and fulfill the sales from out-of-state inventory shipped directly to their customers, resulting in just the Illinois UT collection liability of 6.25%.

This result, while contrary to the intent of the law is, in my estimation, authorized by the law and IDOR’s rules. IDOR has adopted sourcing rules for the various locally imposed taxes it administers and collects that are all essentially identical. For purposes of illustration, let’s reference the Non-Home Rule ROT rules.

IDOR states in Section 693.115(b) that a retailer’s “selling activities” determine the proper taxing jurisdiction. Further, Section 693.115(b)(1) states that “because the statute imposes a tax on the retail business of selling, and not on specific sales, the jurisdiction in which the sale takes place is not necessarily the jurisdiction where the local retailers’ occupation tax is owed. Rather, it is the jurisdiction where the seller is engaged in the business of selling that can impose the tax.” To the extent that a retailer is engaged in the business of selling outside of Illinois, there’s no local jurisdiction entitled to impose a local ROT.

Section 693.115(b)(2) then reaffirms what the Illinois Supreme Court held almost 80 years ago in its 1943 ruling in Ex-Cell-O Corp. v. McKibbin: The occupation of selling is comprised of “the composite of many activities extending from the preparation for, and the obtaining of, orders for goods to the final consummation of the sale by the passing of title and payment of the purchase price.”

Section 693.115(b)(2) also reaffirms the Illinois Supreme Court’s 2013 ruling in Hartney Fuel Oil Co. v. Hamer that “establishing where the ‘taxable business of selling is being carried on’ requires a fact-specific inquiry into the composite of activities that comprise the retailers’ business.”

Section 693.115(c)(2) outlines the five primary selling activities test. Section 693.115(c)(3) provides that a retailer engaging in three of the five primary selling activities in one location shall charge the local taxes imposed at that location. If a retailer engages in three of the five selling activities outside of Illinois, then no state or local ROTs are due, meaning the transaction is subject to just the 6.25% Illinois UT.

Certain multistate brick-and-mortar retailers have arranged their selling activities so that at least three of the five bright line selling activities in IDOR’s sourcing rules occur outside of Illinois. Essentially, this means that their brick-and-mortar locations in Illinois are simply showrooms where no actual sales take place. This allows these retailers to avoid charging any locally imposed ROTs and charge only the 6.25% Illinois UT on sales to Illinois customers.

Obviously, such a result is contrary to the intent of the Leveling the Playing Field legislation. A clear competitive advantage is provided to multistate retailers versus their competitors who only have Illinois brick-and-mortar locations and can’t move their selling activities out of Illinois.

There are other examples of ways in which retailers can modify their behavior to avoid charging a local ROT. In the case of a remote retailer with economic nexus, the retailer can establish a physical presence in Illinois. This could be done by simply sending salespersons into Illinois to meet with potential customers. Establishing a physical presence converts the retailer’s tax obligation from state and local ROTs based on customer location to just the 6.25% Illinois UT.

Additionally, companies engaged in purchases of significant amounts of tangible personal property can have purchases delivered to their low-tax locations or establish purchasing companies in low-tax locations to make all purchases from vendors for resale.

So, has the playing field been leveled? While many online purchases are now subject to a local ROT, as illustrated above, there are workarounds authorized under the law that retailers can strategically leverage to their advantage. Many Illinois retailers are still competing on a tilted field.

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