Tax Decoded | Winter 2019
Oops, They Did It Again
Legislation making Illinois sales taxation more complex and unlevel than before passes during the fall veto session.
Keith Staats, JD
Executive Director, Illinois Chamber Tax Institute
During the last week of the recently concluded fall veto session, the Illinois General passed
additional sales tax legislation modifying and delaying until Jan. 1, 2021 the so-called
Leveling the Playing Field for Illinois Retail Act (“the Act”). Unfortunately, the legislation does
not correct the fundamental flaws of the Act, which was passed last spring and detailed in my fall column
. In fact, it just modifies the tilt of the playing field—and not in a good way.
As you might recall, the Act (Public Act 101-0031) modified the Illinois Retailers’ Occupation
Tax and the Use Tax in the guise of addressing the tax rate differential between out-of-state
sellers subject to use tax and brick-and-mortar sellers subject to state and local retailers’
occupation taxes (ROT). The Act attempted to accomplish this goal by, among other things,
establishing a category of out-of-state sellers known as “remote retailers” and converting
these sellers from use tax collectors into retailers subject to state and local ROT. The
conversion occurs even though such sellers have no brick-and-mortar locations or physical
presence in Illinois.
The Act was originally passed in opposition of the Illinois Department of Revenue (IDOR).
IDOR correctly pointed out numerous problems with the Act that would make it impossible
to administer, including the fact that the initial time frame for implementation (July 1, 2020)
was too short, and the Act is fatally flawed as a constitutional matter.
IDOR has since negotiated modifying the Act with its architects—the Illinois Retail Merchants
Association and Illinois Municipal League. The result was the passage of Senate Bill 119
during the fall veto session.
SB 119 contains amendments suggested by IDOR to address technical concerns related to
administering the sales tax changes in SB 690, like delaying the effective date of the of the
Act until Jan. 1, 2021 and adding back some Use Tax nexus language that will allow Use
Tax collection if the Act is deemed unconstitutional.
Additional amendments account for changes proposed by the Illinois Retail Merchants
Association and the Illinois Municipal League with the avowed goal of further leveling the
playing field between online sellers and brick-and-mortar sellers. However, these changes
do not level the playing field or eliminate the Act’s constitutional infirmities. Indeed, it is
arguable that the Act is now perhaps more flawed. Unfortunately, IDOR was unsuccessful
in convincing the General Assembly of this.
Consider this: SB 119 grants operators of marketplace platforms who are also sellers, and
their related companies, a significant sales tax rate advantage over unrelated Illinois sellers
on marketplace platforms. Effective Jan. 1, 2021, sellers on marketplace platforms are
subject to state and local ROT based on destination sourcing, unless the seller is also the
marketplace operator or a related company.
The concept of “related company” and “unrelated company” is
introduced in SB 119, but there isn’t a definition for “related
company.” There is a definition for “affiliate” that was included in
the original version of the Act, which has a 5 percent ownership
requirement. The definitions of marketplace facilitator and
marketplace seller use the term “unrelated third party,” a different
and undefined term from “affiliate.” As a matter of statutory
construction, it appears clear that a “related company” was meant
by the General Assembly to be different than an affiliate. However,
without a definition, “related company” could include any company
to which the marketplace operator is related in any way. Thus,
Illinois sales tax law could encourage companies to become
“related” to owners of marketplace platforms to avoid becoming
subject to ROT and the destination sourcing requirement for
So, under SB 119, here is how Illinois consumers buying products
on a marketplace platform will be treated:
Let’s revisit my fall column example where I decided to buy a
printer—this time from a marketplace seller like Walmart or Amazon.
When the sale is not made by the marketplace operator or one of
its “related companies,” the sale is by a marketplace seller. In such
instances, the transaction will be subject to ROT without regard to
whether the marketplace seller has a brick-and-mortar location in
Illinois. The local ROT rate (state plus local sales tax) will be based
on my delivery location (i.e., 10.25 percent in Chicago and 9.75
percent in Springfield).
When the sale is by the marketplace operator or any of its “related
companies,” the sale is not a sale by a marketplace seller.
Therefore, if the printer is delivered to me from a location in Illinois
(shipped from either the related company’s Illinois location or from
an Illinois-based fulfillment center) the local ROT rate is based on
the origin of the sale.
When the printer is purchased from the marketplace operator or
one of its Illinois “related companies” and is shipped to me from
out of state, only Illinois Use Tax at the rate of 6.25 percent is due
because the sale will not be deemed made by a marketplace seller
subject to ROT.
In summary, the sales tax rate charged to me when identical
products are purchased through a marketplace platform will vary
based on who makes the sale and, in the case of marketplace
operators and their related companies, whether the sale is fulfilled
from an Illinois-based or an out-of-state warehouse. This means
marketplace operators and their related companies that fulfill sales
from out-of-state inventories will have a price advantage over other
sellers on their platforms.
Further, SB 119 also modified the tax treatment of brick-and-mortar
retailers who also sell through marketplaces operated by unrelated
third parties. According to SB 690, an Illinois brick-and-mortar
retailer that sells items through its own website or through a third-party
marketplace is responsible for charging the state and local
sales tax rate in effect at its selling location (generally the location
of its brick-and-mortar location, or origin sourcing). Thanks to SB
119, effective Jan. 1, 2021, such sales remain subject to ROT, but the
tax rate is no longer based on the seller’s selling location but the
As you can see, the more complex Illinois sales taxation becomes,
the more unlevel the playing field grows.