Burning through those online gift cards will go incrementally faster in 2021 depending on how high local sales taxes are in your local Illinois municipality.
That’s because of a 2019 law that took effect with the new year.
In reaction to the U.S. Supreme Court’s Wayfair v. South Dakota lawsuit, Illinois lawmakers sent Gov. J.B. Pritzker legislation that would require many online retailers, including Amazon and others, to collect state and local sales tax from online purchases. Online retailers have collected a use tax at the same rate as sales tax before the new year but the new law means where you live could add cost to the purchase.
“You’re not just paying the 6.25%, you’re paying 8.25% or 7% because they’re taking that state 6.25% and they’re taking county or other optional-to-enact taxes,” said Carol Portman, president of the Taxpayers Federation of Illinois. “If it goes to me in my home in Downers Grove, it’s one thing. If it goes to my office in Springfield, it’s a different one.”
For instance, Chicagoans buying a stuffed animal from Amazon would pay Illinois’ 6.25% rate but also Cook County’s 1.75% and Chicago’s 1.25% taxes for a total of 10.25%. The teddy bear shipped to Carbondale would see the state tax plus Williamson County’s 1% tax for a total 7.25% tax.
Sellers conducting business via an online marketplace like Amazon rely on the retail giant to collect the correct amount of taxes. Illinois had historically relied on the buyer to remit taxes, something that was regularly ignored. Illinois and others then changed course and began requiring retailers to collect sales taxes, putting the onus on them to remit the tax.
Retailers say this puts online sellers on even ground with local shops who must charge higher prices to account for local taxes and fees.
Online retailers who sell less than $100,000 annual gross sales or have fewer than 200 individual sales to Illinois do not have to collect the tax. The tax change gets complicated if an online retailer has a physical presence in Illinois. According to the Illinois Department of Revenue, an online retailer that completes a sale from a location in Illinois would apply the taxes from that location. If the business sells something outside of the state, it would then apply the 6.25% use tax.
“Illinois’ sales tax structure has always been complicated and this just adds another layer of complexity to it,” Portman said. “The good news is that, for brick-and-mortar retailers, there’s no difference for any of their customers now whether you buy something from an online seller or if you buy it from the brick-and-mortar retailer.”