Sales Tax Obligations of a Seller in Illinois

April 13, 2006

	Visited: 147
	Not rated
	Rate:

As a seller, you have the obligation to pay sales taxes to the state. While the state requires your customers to reimburse you for the sales tax, you're going to have to make sure you collect the right amount of sales tax. If you don't, Illinois has the right to pursue your customer for the right amount of tax. However, this will not be very practical if the purchaser cannot be tracked down. Accordingly, the state may demand that you make up any underpayment. For this reason, we recommend that you review the following discussions in order to avoid undercollecting sales tax from your customers.

Procedure for accepting a resale certificate. If your customers purchase goods or products for resale in their business, Illinois provides a resale exemption from sales tax. Illinois does not set forth any specific procedures for accepting a resale certificate. However, you should require that the purchaser present, in good faith, a resale certificate that includes the following information:

your and your customer's name and address
an indication of the general character of the property your customer is purchasing
your customer's registration number or resale number
your customer's foreign certificate of resale if your customer is an out-of-state purchaser

Procedure for accepting blanket resale certificates. Illinois allows you to accept blanket resale certificates from your customers. A blanket resale certificate is a resale certificate provided to you by those customers who make numerous exempt resale purchases from you. The idea is that by maintaining a blanket resale certificate, both you and your customer can avoid the hassle of having to present a certificate every time your customer makes a purchase. The law does not set forth any specific procedures for accepting a blanket resale certificate. However, you should require that the purchaser present, in good faith, a blanket resale certificate that contains the same information as the regular resale exemption certificate.

The blanket resale certificate will remain valid for an indefinite time period, but the state recommends that you obtain updated certificates every three years.

Sales and use tax liability for out-of-state mail order and catalogue retailers. Illinois has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if your business has physical presence within Illinois. To determine if you have a physical presence, ask yourself the following:

Do I have retail facilities, a warehouse or any office space in Illinois? Maintaining retail or warehouse facilities means that your business has a physical presence within the state. Also, if you have an office for employees, even for business activities unrelated to mail order sales, your business will have a physical presence within the state.
Do my employees or I enter Illinois for purposes of taking and transmitting orders from customers in Illinois? If your employee or independent contractor enters Illinois for purposes of taking or transmitting orders, your business has a physical presence in Illinois. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence within the state.
Do my delivery vehicles frequently enter Illinois for purposes of delivering property? Frequent deliveries in Illinois by your trucks will give you physical presence in Illinois. An occasional delivery, however, may not constitute a physical presence within the state.

Passing on the sales tax to your customers. You will be responsible for paying Illinois sales taxes, but the law requires you to pass it on to your customers. State law does not allow you to pay the tax out of your pocket — what is know as "absorbing the tax".

Calculating sales taxes. You calculate sales taxes by taking the tax rate, which is generally 6.25 percent, and multiplying it by your gross receipts. Gross receipts are based on your total retail sales or tangible personal property transferred to your customers through the services you provided.

Claiming a refund of overpayment for sales and use taxes. If you frequently audit your sales transaction reports, you may discover that through an error, sales or use tax was overpaid on a transaction. If you or your customer discover such an overpayment, the state allows you or your customer to file a claim for a credit or refund. You or your customer should submit the claim on forms furnished by the Illinois Department of Revenue. The state will normally issue a credit memorandum rather than give a refund to the person who made the erroneous payment.

Time limitations for filing a refund claim. If you're going to file a refund claim for overpayment of sales or use tax, you'll have to do it within three years from the date you paid the tax. If you file a refund claim after that time, the state will not approve it.