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ACTION NEEDED: Illinois requires remote sellers and marketplaces to collect local sales tax starting January 2021

Kindly note that Avalara support agents cannot provide tax advice. They can assist you with how our software and service works, and the settings within it to achieve your desired result, but they cannot tell you if you should collect tax in a certain area or for a certain product, etc.

What is happening

The Illinois Department of Revenue has issued guidance for remote retailers related to recent tax legislation. This may impact remote retailers and marketplace facilitators that do business in the state.

Effective January 1/1/2021, the threshold for the new remote seller requirement of reporting at destination rates applies to business that meets one of the following:

  • The cumulative gross receipts from sales of tangible personal property from purchasers in Illinois are $100,000 or more
    OR
  • The remote retailer enters into 200 or more separate transactions for the sale of tangible personal property to purchasers in Illinois.

What you need to do

If you are unsure if your company has been impacted by this change, please review this informational bulletin published by the state of Illinois, review this flow chart to understand your tax obligation, review registration examples for Marketplace Facilitators and Remote Sellers, and find additional guidance from the state here (Call the state to confirm if necessary: 217-785-3707).

NOTE: If your company is impacted by the new Illinois law, you will need to contact the State of Illinois to update your registration by adding an initial Changing Location. The State has advised that taxpayers can default to using Chicago as their initial changing location for registration. As a part of the process of selecting the IL ST1ST2 filing calendar, Avalara is working in conjunction with the Illinois Department of Revenue to register new changing locations / non-physical state administered locations as part of the return filing process. Changing locations / non-physical locations will not need to be set up in Avatax. Changing / non-physical locations are reported by state assigned codes, which are determined by the destination sourcing of transactions.

Please select the appropriate drop-down from the below list as per your subscription. 

For AvaTax and Avalara Returns customers

  1. In AvaTax, if you're a Remote Seller that sources transactions by destination, your Where You Collect (nexus) settings should be set to Sales Tax Only.
    1. Go to Settings > Where You Collect tax and update the tax type setting for Illinois.
  2. Location set up
    1. If applicable, create all physical locations within the AvaTax system and pass location codes for applicable transactions.
  3. Expire the ST1 Scheduled Return effective 12/31/20.
    1. In AvaTax, go to Returns > All Scheduled Returns.
    2. Click the pencil icon to open the form.
    3. Click How do I stop filing this form.
  4. Create a new filing request for the USILST1ST2 return, effective 1/1/21.
    1. In AvaTax, go to Returns > All scheduled returns.
    2. Click Add a tax return form and follow the instructions.

    * NOTE: As a part of the process of selecting the IL ST1ST2 filing calendar, Avalara is working in conjunction with the Illinois Department of Revenue to register new changing locations / non-physical state administered locations as part of the return filing process. Changing locations / non-physical locations will not need to be set up in Avatax.  Changing / non-physical locations are reported by state assigned codes, which are determined by the destination sourcing of transactions. 

    Customers are responsible for registering any physical locations with the Illinois Department of Revenue and setting up those locations in Avatax. Location codes will need to be passed with transactions for physical locations.

For AvaTax-only customers

  1. In AvaTax, if you're a Remote Seller that sources transactions by destination, your Where You Collect (nexus) settings should be set to Sales Tax Only.
    1. Go to Settings > Where You Collect tax and update the tax type setting for Illinois.

For Trustfile Online and Returns for Small Business customers

For Trustfile and Returns for Small Business Users, the new form option will be made available in January. This change impacts January returns filed in February; December returns will be filed as normal.

Trustfile customers will need to change the form selection in the drop down for the January accruing return period. The IL ST1 ST2 form option will not be available until after 1/11/2021.

Returns for Small Business customers:

  1. Expire ST1 Scheduled Return effective 12/31/20. 
    1. In AvaTax, go to Returns > View and add returns. 
    2. Navigate to the Details button.
    3. Click Click Expire this return.
  2. Create a new filing request for the USILST1ST2, effective 1/1/21. 
    1.  In AvaTax, go to Returns > View and add returns
    2. Click Add a tax return form and follow the setup instructions.

Returns Set-up Scenarios

Scenario Criteria Nexus set-up Transaction Data

Remote Seller (above threshold) 

Out of state sales: equal or above $100K or 200 transactions per year

Sales tax only - This is required to force Avatax to tax all transactions at destination rates for all Out of state origin transactions

Changing location reporting only - origin of transactions/sales are Out of state or duplicate destination address and are required to be reported at destination non-physical locations

Remote Seller (below Threshold) 

Out of state sales: below $100K or 200 transactions per year

Sales and Seller's Use (Seller's Use only transactions) - all transactions should have an Out of state origin

Origin of transactions is Out of state

Physical & Out of state

Without Remote Seller Requirement (assuming remote seller threshold doesn't apply) 

Sales and Seller's Use

In-state: A corresponding IL physical location is registered and set up in Avatax. That location code is passed on transactions for location assignment that have the in-state address as the transaction origin.

Out of state to be reported on lines 6/7A: Origin of transactions is Out of state and only taxed at 6.25% for general sales and 1% for food drug and medical.

Changing locations / Non-physical locations

Temporary/traveling presence in jurisdiction where sales are made

Sales Tax only

Origin and destination address on transaction are duplicated.

Changing locations / Non-physical locations &  Out of state

Temporary/traveling presence in jurisdiction where sales are made and Out of state sales

Sales and Seller's Use

Sales to changing locations need to have the origin address duplicated as the destination.

 

Sales with an Out of state origin will be calculated at the state rate only.

Physical, Changing & Out of state

Physical registered location (ex. warehouse), temporary presence & making online sales 

Sales and Seller's Use

Physical locations: Transactions that require reporting to a registered physical location will need to have location codes passed in the data that correspond to a location setup in Avatax.

Changing locations / non- physical locations: origin address should be duplicated with the destination address - no Avatax location code attached, sales tax type 

Out of state: Seller's Use tax - Out of state Origin – not connected to location code setup in Avatax

Physical & Changing locations / Non-physical locations

warehouse, temporary presence

Sales Tax only

Transactions that require reporting to a registered physical location will need to have location codes passed in the data that correspond to a location setup in Avatax.

Changing locations / non-physical locations sales will be assigned based on state assigned codes for transactions that are not assigned an Avatax location code.

Marketplace seller w/direct sales

Sales through a marketplace do not apply to threshold determinations, only direct sales from a business. Direct Sales reporting to be determined via one of the previously listed scenarios.

Nexus to be set based on direct sales reporting criteria

 

Marketplace sales will automatically be excluded from the IL return. Sales that are reported by a marketplace facilitator should not be included with direct sales reporting.

Important highlights

New sales tax collection requirements for remote retailers

Starting January 1, 2021, out-of-state retailers that don’t sell through marketplaces  and have no physical presence in Illinois must collect the state and local retailers’ occupation tax in effect at the point of delivery (destination sourcing) if they have economic nexus with Illinois.

New sales tax collection requirements for marketplace facilitators

For marketplace facilitators with distribution or fulfillment centers in Illinois, all sales made through the marketplace will be subject to state and local retailers’ occupation tax starting January 1, 2021 — but some sales will be subject to origin sourcing rules and some to destination sourcing rules.

Resource list