Illinois is ready to hit the ground running after a U.S. Supreme Court decision handed down Thursday gives states the authority to make remote online retailers collect sales taxes and fork the money back to the state where the sale took place.
Internet retailers previously were not bound by state sales tax laws unless they had a physical presence in the state.
For example, Amazon, didn’t charge online shoppers in Illinois the 6.25 percent Illinois sales tax until three years ago, when the company opened it’s first warehouse in Illinois.
Illinois positioned itself for this moment by passing a law in May that calls for online retailers — regardless of their presence in the state — to begin collecting Illinois sales tax beginning Oct. 1.
The bill, however, had no teeth until Thursday, when the Supreme Court ruled.
That’s not to say the 6.25 sales tax is anything new. What will be new is the collection method.
Historically, the burden has been on the consumer in Illinois to keep tabs on what “use tax” — essentially the same thing as a sales tax — he or she owes when purchasing online goods from a remote retailer and later hand the money over to the government accordingly — hardly a surefire sales-tax collection policy.
Terry Horstman, a spokesman for the Illinois Department of Revenue, said the state expects to collect about $200 million annually because of the new way of collecting online sales taxes.
Horstman could not say how much money was collected annually when the burden was on the consumer to pay the state, but he said the change “will bring in a significant amount of additional revenue.”
State Sen. Heather Steans, D-Chicago, a sponsor of the legislation passed in May, was more specific. With the onus on individuals to pay, she said, the state collected about $15 million a year.
“Compliance has been very, very low. It’s just a complicated thing to do on your own … the money this change will bring the state is not an insignificant sum,” she said.
“We’re very pleased with the ruling,” said Rob Carr, president of the Illinois Retail Merchants Association. “It levels the playing field so bricks-and-mortar retailers no longer have the sales tax code arbitrarily used against them.”
Bricks-and-mortar retailers have long complained about being at a disadvantage to online retailers who can offer their goods at a discounted rate because they didn’t have to tack on state sales taxes.
The Supreme Court ruling stemmed from litigation brought by the state of South Dakota against several large online retailers, including the popular home goods seller Wayfair, seeking to enforce state tax code.
The Illinois law mirrors South Dakota’s threshold at which a state sales tax kicks in for individual online retailers. Any retailer that conducts at least 200 transactions or has at least $100,000 in annual sales within its borders must collect sales tax, regardless of the company’s brick and mortar footprint in the state.
States around the nation are expected to follow suit on collecting taxes directly from internet retailers — regardless of where they are located — now that the Supreme Court has opened the gate.