Illinois explains nuance to marketplace collection requirements
TAX ALERT |
On Feb. 10, 2020, the Illinois Department of Revenue issued a compliance alert affecting marketplace facilitators and marketplace sellers. As of Jan. 1, 2020, marketplace facilitators must collect and remit all applicable Illinois use tax. Illinois use tax is generally imposed on transactions sourced from outside the state, meaning that vendors that established nexus through 1) economic thresholds or 2) physical presence but without a business location in the state, are liable for the tax. Accordingly, a marketplace facilitator must have the requisite economic sales tax nexus or qualify under another sourcing provision to be subject to the use tax.
However, the compliance alert explains that if the sales involve the retailers’ occupation tax (ROT), the responsibility for collection and remittance remains with the marketplace sellers – those selling through the marketplace platform. The department noted that marketplace sellers will incur ROT collection and remittance responsibility when purchases are filled from inventory in Illinois.
The department emphasized that marketplace sellers are responsible for all applicable ROT collections. The marketplace seller must register, or remain registered, with the department to remit the ROT to the state. The department also noted that many marketplace facilitators are not currently able to differentiate between transactions where the Illinois use tax is due and transactions where the ROT is due. For that reason, facilitators may be improperly collecting and remitting use tax on all sales through the marketplace. However, transactions where ROT is due are required to be reported on the marketplace sellers return, including applicable local tax.
As importantly, the department noted that it does not have the authority and will not credit any taxes remitted by the marketplace facilitator against marketplace seller ROT liability.
Businesses that are marketplace facilitators or marketplace sellers should be aware of this alert. The department is clear as to which parties have collection and remittance responsibilities. Facilitators are responsible for use tax collection; sellers are responsible for ROT collection. Thus, it is important to know whether the transaction involves the use tax, due from the marketplace facilitator, or the ROT, due from the marketplace seller. Additional information is available through the state’s Illinois Use Tax Requirements for Marketplace Facilitators and Marketplace Sellers bulletin. Taxpayers facilitating or making sales to Illinois customers through a marketplace should read the guidance closely and reach out to their Illinois tax advisers with questions.