Illinois Extends the Destination-Based Sourcing Rules to All Retailers

Illinois changes its sourcing rules and makes retailers who maintain a place of business in Illinois but sell tangible personal property from a location outside Illinois responsible for destination-based sourcing for sales tax purposes.

Timeline

The provision of Illinois S.B. 3362 goes into effect on January 1, 2025.

Impact

Out-of-state retailers who have a physical presence in Illinois but sell from out-of-state will be responsible for collecting and remitting state and local sales tax based on the destination principle. The Bill creates equality between remote retailers with and without in-state presence.

By introducing the Leveling the Playing Field for Illinois Retail Act, Illinois has already introduced destination-based sourcing rules for remote sellers without in-state presence and marketplace facilitators. Suppose these entities meet certain thresholds (200 separate transactions or USD 100,000 in annual sales). In that case, they must register to collect and remit Illinois state and local sales tax for sales of tangible personal property since January 1, 2021.

However, if a seller had only an economic presence in Illinois but sold from out-of-state, they only had to charge state-level use tax (6.25%) based on the origin principle. As of January 1, 2025, these remote sellers will have to collect and remit local sales tax (Retailers’ Occupation Tax) on top of state sales tax.

Businesses operating in Illinois should prepare their tax systems to be able to apply destination-based sourcing compliantly.