Illinoisans are likely to have to pay more sales tax when shopping online after state lawmakers made two big changes to tax rules. State tax collections are expected to increase by $288 million this year.
First, marketplaces – think eBay or Etsy – will be required to collect the 6.25 percent state sales tax on behalf of third-parties selling to Illinois customers. Until this legislation, it’s been up to each seller to collect the tax. And, Rob Karr, president of the Illinois Retail Merchants Association, said many do not.
Come next summer, they’ll have to collect local sales tax too, based on where the customer is.
Second, big online sellers based outside of Illinois will also have to charge the local sales tax, based on where the customer is shipping the item. So a Springfield customer would pay a total of 8.75 percent.
The rules are a response to a Supreme Court decision from last year — Wayfair v. South Dakota — which allows states to collect taxes from retailers based elsewhere.
Karr said the changes will help eliminate an unfair advantage online retailers have over brick-and-mortar stores.
“We want to make sure sales tax is not a competitive advantage or disadvantage [to] someone,” he said. “A sale a sale no matter where it occurs. And this law recognizes that to be the case.”
The new rules would mean more revenue for cities, too — as much as $92 million more statewide, according to the Illinois Municipal League.
Bill McCarty, budget director for the city of Springfield, said after years of seeing sales tax revenue stagnate, the changes are welcome news.
“We’re going to get more money than we’re getting now and certainly that’s a step in the right direction,” he said.
McCarty said he’s not sure yet just how much more to expect, and he’s not counting on any of the money for a couple of years.
Carol Portman, with the Taxpayers Federation of Illinois, said requiring marketplaces to collect sales tax on behalf of sellers is a practice other states are adopting, too.
But she warned the rules treat in-state and out-of-state sellers differently. That could lead to a lawsuit.
“It's leveled the playing field with a brick-and-mortar, but it has un-leveled the playing field with online sales,” she said.
Karr believes the chances of a legal challenge are low, and rules treat retailers differently now too. He said the benefits to both shops in Illinois and state government itself outweigh the risks.
According to IRMA, yearly collections could be $460 million in the first full year of implementation.