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By: Rebecca K. Wohltman

Illinois Department of Revenue (“IDOR”) recently released a Compliance Alert regarding the changes in sales tax law.

As of January 1, 2020, Illinois law shifted the obligation to collect and remit sales tax from a retailer to the marketplace facilitator (assuming certain transaction thresholds are met). In a perfect world, the marketplace facilitator (i.e. Amazon) would collect all applicable sales tax, including local municipality taxes, and remit those taxes accordingly.

However, due to software limitations, marketplace facilitators are unable to do so. There are thousands of tax districts and rates nationwide. Knowing which taxes apply to which transactions is quite the challenge, especially when these rates change frequently. Software is generally not able to track all of these tax rates.

The Compliance Alert issued by IDOR advises retailers that if a marketplace facilitator collects only use tax (not the local sales taxes), the retailer is liable for the entirety of the sales tax. IDOR says it has “no authority” to credit the retailer for any portion of the use tax collected and remitted by the marketplace facilitator.

For example, if the retailer sells a $100 widget on Amazon and the sales tax rate (including all local taxes) for that transaction is 10%, but Amazon collects and remits only the 6.25% Illinois use tax, IDOR says the retailer is still liable for the $10 of tax on the sale of the widget even though Amazon already paid $6.25.

Is Illinois double-collecting taxes? Is this policy proper? I expect we will see future litigation on this issue, but any litigation will likely take several years to reach a resolution. Until then, IDOR tells retailers to not rely on a marketplace facilitator to collect and remit sales tax.

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