Illinois retailers and municipalities scored a victory with changes to the internet sales tax law projected to raise more revenue and provide relief for brick-and-mortar stores.
Beginning Jan. 1, 2020, online sellers like eBay, Amazon and Walmart must collect and remit the Illinois sales tax at 6.25 percent. Additionally, sellers in other states must also comply with the new collection laws that apply in the location where the products are being shipped. For example, an order placed with Nevada-based Zappos and shipped to Chicago means the company must collect the city’s 10.25 percent sales tax vs. the statewide rate of 6.25 percent.
The Illinois Retail Merchants Association projects the two changes will generate an additional $460 million in annual revenue and lead to an increase in compliance.
Amazon began charging online shoppers the statewide sales tax three years ago, when the company opened its first warehouse. Historically, Illinois shoppers were expected to record how much they owe the state from purchasing goods online, shifting compliance from multibillion-dollar companies.
More important to IRMA CEO and President Rob Karr, the sales tax changes will benefit brick-and-mortar retailers who were being forced to collect the local tax rate with each transaction.
“This will level the playing field. The sales tax should not be an advantage for anyone,” Karr said. “This helps small and big-box stores. . . .We have been at this for 10 years.”
Karr said the U.S. Supreme Court decision last June in South Dakota v. Wayfair, allowing states to collect sales tax from online retailers, allowed the bills to be adopted. Before the court’s decision, internet retailers were not bound by state tax laws unless they had a physical presence in the state.
That created a loophole for large, out-of-state retailers and harmed brick-and-mortar stores that didn’t have the option to pay the broader state tax rate, Karr said.
The new law states any marketplace with more than $100,000 in sales will collect local taxes, and shifts the burden to retailers from consumers, according to Carol Portman, president of the Taxpayers’ Federation of Illinois
“This will level the playing field for small Illinois retailers against other states,” said Portman.
She described the new approach as a hybrid-model because large e-commerce sellers will have to navigate and collect each municipality’s local sales tax rate, potentially creating variable prices for the same goods, depending on where it is delivered.
However, the new law could create further confusion for price-sensitive buyers, because it will likely raise prices for some and will add another layer of complexity to existing sales tax laws.
“There is going to be a little bit of disconnect for customers,” Portman said.