US Illinois out-of-state sales tax 2025 reforms

Harmonise sales tax rate rules for sellers shipping goods from outside Illinois

The Illinois Governor has signed into January 2025 law changes to the sales tax sourcing regime for out-of-state sellers. This will make it fairer by using the same tax base for local and remote sales of goods to consumers. Public Act 103-0983 seeks to simplify tax compliance by applying destination sourcing rules uniformly to both remote retailers and out-of-state sellers shipping from outside Illinois.

Illinois will require out-of-state retailers with a physical presence to collect state and local taxes at destination-based rates when shipping goods from out-of-state locations. This change, under SB 3362, standardizes sales tax sourcing for all out-of-state sellers, aligning them with remote sellers’ existing destination-based tax obligations.

The Leveling the Playing Field for Illinois Retail Act, enacted in 2019 and effective from January 1, 2021, was designed to standardize sales and use tax obligations across Illinois-based retailers, remote retailers, and marketplace facilitators. Illinois’ tax structure includes four distinct types: the Retailers’ Occupation Tax, Service Occupation Tax, Service Use Tax, and Use Tax on tangible personal property. These taxes have specific sourcing rules based on the type and location of the seller.

Following the 2018 South Dakota vs Wayfair Supreme Court ruling, states may include out-of-state or non-resident sellers and marketplaces in the sales tax net if they sell into the sate – known as economic nexus test which was added to the physical nexus test following Wayfair.

3 sales tax seller Categories taxing obligations:

1. In-state Sellers (Illinois Retailers): Based in Illinois, these sellers collect state and local Retailers’ Occupation Tax at the rate effective at the seller’s location, regardless of the buyer’s address, under the “origin sourcing” rule.
2. Out-of-state Sellers:
   • Sellers with physical presence or inventory in Illinois are treated as in-state sellers when shipping from within Illinois, paying taxes based on the ship-from address.
   • If shipping from inventory outside Illinois, they are subject to the state use tax without additional local taxes.
   • Marketplace inventory used solely for orders through registered marketplace facilitators does not establish a physical presence for these sellers, with the marketplace facilitator responsible for tax collection.
3. Remote Sellers: These sellers, without a physical presence in Illinois, follow “destination sourcing,” charging taxes based on the delivery address.

Marketplace Facilitators: Effective July 1, 2021, marketplace facilitators had to start collecting and remitting both state and local taxes on sales made through their platforms. They apply origin sourcing for inventory within Illinois and destination sourcing for inventory outside the state.

US Sales Tax rates and selling thresholds