Sales tax, like all tax issues, can be tricky for businesses to understand. In our Illinois sales tax guide for small businesses we answer the many questions you, as a business owner, may have. Do I even need to collect sales tax? Which customers should I collect it from and how much do I collect? How do I file the sales tax I’ve collected and when? Illinois small businesses can use this guide to better understand the role sales tax plays with their business and customers.
Sales Tax Nexus in Illinois
Businesses are only required to collect sales tax if they have what is called “Sales Tax Nexus” in Illinois. What is this term you ask? Nexus is a Latin term meaning “that which binds together.” Today we understand it as “sufficient physical presence” within a state. Illinois will consider you to have sales tax nexus within the state if you fall ino any of the following categories:
You have an office, warehouse or any physical place of business within Illinois
You have a contractor, employee, salesperson, agent or representative in Illinois
You have a 3rd party affiliate within the state
Still unsure? Check out the Illinois Department of Revenue’s website for a more in-depth look.
Are your Products Taxable?
So, you found out you have sales tax nexus in Illinois. Now it depends on what it is you are selling that will determine if sales tax is applicable to your business.
Are you selling a service such as plumbing or consulting? Well then you are off the hook. Services in Illinois are typically not sales-taxable. However, if the service you provide involves selling a product such as parts or tools, then sales tax may apply.
Sales tax applies to most tangible products in the state of Illinois. Whether you sell phone cases or sofas, a sales tax must be applied. Some exceptions exist with building materials or equipment for particular jobs, but for the most part, if you can touch it, it will be taxed.
Register for a Sales Tax Permit in Illinois
It is required for all sellers with sales tax nexus in Illinois to apply for an Illinois sales tax permit. You can do this online through MyTaxIllinois or mail in form REG-1 to:
Central Registration Division Illinois Department of Revenue PO Box 19040 Springfield, IL 62794-9030
The permit is free and takes only two days if you register online. Mail-in could take 6-8 weeks for processing.
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How Do I Collect Sales Tax in Illinois?
Now that you have your Illinois sales tax permit you can begin collecting sales tax on your products. The amount of sales tax you collect depends on whether you are based inside or outside of Illinois.
When based in Illinois, determining your sales tax rate is quite simple. Your sales tax rate is the sum of the city, county and state sales tax rates your business resides. You can calculate that rate by using the TaxJar Sales Tax Calculator. If you have more than one business location, then it is the location of the sale that determines the sales tax rate. Below is a chart of the total sales tax rates from the 20 most populous states in Illinois:
If you make a sale into Illinois from out-of-state, whether it be online, by phone or representative, you are required to collect a 6.25% ‘Use Tax’. It is a flat rate and not determined by location of the sale nor are there any local sales tax rates to abide by.
Collecting Sales Tax on Shipping Charges in Illinois
Generally, sellers should collect sales tax on shipping charges in Illinois. Up until 2016 the laws were muddy and confusing, but finally after a supreme court ruling, Illinois has amended these laws. For further reading on the subject see TaxJar’s article.
When are my Illinois Sales Tax Returns Due?
Unless falling on a weekend, Illinois Sales Tax Returns must be filed on the 20th of the mon th following the tax period. The chart bellow shows the proper dates:
Illinois Quarterly Sales Tax Filing Dates for 2016
Illinois Annual Sales Tax Filing Dates for 2016
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How Do I File Sales Tax in Illinois?
When filing sales tax in Illinois you need to calculate how much you owe, files a sales tax return, and make your payment.
Calculating How Much You Owe
There several tools online to help you calculate your sales tax return. Connect all the channels through which you sell your products (your online store, amazon, ebay, etc.) and calculate by adding up all of the sales tax you collect. If you need help will this Founder’s CPA can help.
How to File and Pay Sales Tax in Illinois
There are two options for filing and paying your Illinois sales tax:
File by mail – You can use Form ST-1 and file and pay through the mail.
Be aware of the late filing and payment penalties. Do not miss your due date! Illinois charges a 2% penalty of the tax due for late filing. For late payment Illinois charges 2% if within 30 days, 10% if not paid within 90 days, 15% for 180 days, and 20% for anything above that. Get those payments in!
Other penalties include ‘Zero Returns’. If you hold a sales tax permit you must file a sales tax return, even if you don’t have any sales tax to report or pay.
Many states offer discounts on sales tax for filing on time. Illinois offers the greater of 1.75% savings or $5 for the calendar year. Make sure you get those returns in and save yourself some money!
That wraps up our Illinois Sales Tax Guide for Small Businesses. For any questions or help on any of these matters, or other tax or accounting related issues don’t hesitate to accept a free consultation through Founder’s CPA or visit our services page for more info.