Sales may be booming at your small business, but if you are not complying with your obligation to pay Illinois state sales tax, your hard-earned revenues could be at risk. Collecting and paying state sales tax is a legal requirement for many – but not all -companies doing business in Illinois. As such, it is important to understand what sales tax is and whether or not your small business is on the hook.
What is “sales tax” according to the state of Illinois?
As defined by the Illinois Department of Revenue, sales tax is “is a combination of ‘occupation’ taxes that are imposed on sellers’ receipts and ‘use’ taxes that are imposed on amounts paid by purchasers. Sellers owe the occupation tax to the department; they reimburse themselves for this liability by collecting use tax from the buyers.”
Basically, if your business is subject to Illinois sales tax, you are in some respects acting as both a taxpayer and tax collector, paying your tax obligations through the amounts collected from consumers for their tax obligations.
Does Your Business Owe Illinois Sales Tax?
Whether you need to learn more about Illinois sales tax or whether it is irrelevant to you depends on what your business does and where it does it.
Goods v. Services
If your business provides services rather than sell tangible goods, you likely do not have to charge and pay sales tax. Generally, services are not taxable in Illinois. Sales tax applies to the sale of “tangible personal property” for use or consumption. “Tangible personal property” does not include real estate, stocks, bonds, or other “paper” assets representing an interest.
Many businesses, such as an auto mechanic, provide goods (parts) in connection with the provision of services (repairs) and need to ensure that they are collecting and paying tax on those goods.
Different types of goods and businesses may be subject to distinct Illinois sales tax rates and requirements, and there are numerous exemptions as well, so it is important to consult with a knowledgeable Illinois tax advisor about your company’s specific sales tax liabilities.
“Nexus” With Illinois
Companies are subject to Illinois sales tax obligation only if their business has sufficient “nexus” with Illinois.
“Nexus” for purposes of Illinois sales tax liability essentially means having enough of a “significant presence” in the state that it would be fundamentally fair to impose such a tax. Nexus is a simple inquiry if your business is headquartered or maintains a physical office in the state, but online sales and solicitations as well as other activities by companies located far from the Land of Lincoln can also subject them to state sales tax.
Whether your business has sufficient nexus with Illinois can be a tricky issue, and the Illinois Department of Revenue’s regulations regarding sales tax nexus contain a wide range of specific qualifying activities.
Calculating, filing, and paying your Illinois sales tax liabilities can also be complicated. If you have any questions or are seeking assistance with your company’s Illinois sales tax obligations, please contact us. We welcome the opportunity to assist you.