Like so many other states, Illinois has established an economic nexus threshold following the U.S. Supreme Court’s Wayfair decision, that became effective October 1, 2018. The Supreme Court previously ruled that an out-of-state seller’s liability to collect and remit the tax to the consumer’s state depended on whether the seller had a physical presence in that state, but that mere shipment of goods into the consumer’s state, did not satisfy the physical presence requirement. However, that physical presence requirement is null and void following Wayfair, and nexus can be found on an economic basis.
As many states’ have begun to do, Illinois followed suit by enacting “emergency” rules relating to the ever-evolving economic nexus law. Throughout the enactment of the rule amendment, Illinois repeatedly pointed out that if a company has physical presence, the economic rule is inapplicable because nexus has previously been established. As Illinois pointed out in its example, if a company has physical inventory within the state, it has nexus and should be collecting and remitting tax under physical presence standards irrespective of sales volume. This seems to directly target Fulfillment by Amazon (“FBA”) and other fulfillment businesses that sell online.
Of note, the Illinois amendment had some other interesting provisions. The amendment requires that a company must evaluate its annual sales volume at the end of each quarter. If the 200 sales or $100,000 of sales are met, then the company must register, collect, and remit use tax on its sales into the state. The amendment also specifically states that if a company has 100% exempt sales into Illinois it will not be required to register, and only taxable sales need be considered in the gross sales threshold. Further, the amendment also allows a company to stop collecting if it falls below the gross sales or transaction threshold, however, the state encourages the company to continue collection as a “courtesy” to its customers.
Remote sellers who conduct business in Illinois may be affected by this new rule once it is implemented. If you believe this rule may affect you, contact the Law Offices of Moffa, Sutton Donnini, PA, as we can discuss your options moving forward with you. Further, government agencies only have emergency rulemaking power in very specific circumstances. As a result, emergency rulemaking authority is typically challengeable in administrative court, most commonly based absence of an emergency to constitute grounds for emergency rulemaking.
Gerald “Jerry” Donnini II is a shareholder of the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Donnini concentrates in the area of state and Federal tax matters, with a heavy emphasis on the tobacco, alcohol, motor fuel and related industries. He also handles a myriad of multi-state state and local tax issues. Mr. Donnini is a co-author for CCH’s Expert Treatise Library: State Sales and Use Tax and writes extensively on multi-state tax issues for SalesTaxSupport.com. For more information please call us at 888-966-8216.