IL SALES TAX AND PENALTIES

Author: J&R Accounting Group LLC. |

Blog by J&R Accounting Group LLC

What Is Eligible for Sales Tax in Illinois?

Like most states, Illinois has a list of items that are not subject to sales tax. This list of exemptions includes the following physical goods:

  • Services – The majority of services in Illinois are not subject to sales tax. There are, however, exceptions to this rule including activities that involve creating or manufacturing a finished good for sale.
  • Certain Food, Drugs and Medical Appliances – While not always immune from sales tax, these items are taxed differently in Illinois. This includes food that is not prepared for immediate consumption, prescription medications, and prescription medical appliances that are used to replace a malfunctioning part of the human body (contact lenses, eyewear, prostheses, dentures, and syringes for insulin).
  • Vehicles requiring registration or titling – Motor vehicles, watercraft, aircraft, and trailers, and other vehicles that must be registered have different tax requirements, which you can read in STS-76, Illinois’s Vehicle Tax Information Guide.

Illinois Sales Tax Registration

To collect sales tax in the State of Illinois, a business must first register for a sales tax permit, required before you make any purchases or sales and before you hire your first employee. To do so, you can use the MyTaxIllinois website or you can complete the paper form, REG-1 to obtain your sales tax permit.

To complete your sales tax permit application, you will need all of your business’s identifying information, a detailed breakdown of your business structure, owners, and officers, and a list of what you will be collecting sales tax on. The process is free and takes about 2 days online, or 6-8 weeks if you mail the paper form to process, so it’s recommended you file this as early as possible so you have a permit in hand before you start operating in Illinois.

Once you receive your permit, you are not required to renew it regularly, but it is recommended to keep it up to date with relevant information as your business grows.

Filing Illinois Sales Tax Returns

You will pay Illinois sales and use tax by:

  • For Those in State – Illinois is an origin-based state so you will collect sales tax based on where you are located in the state. Because of the varied nature of county, municipality, and state rates, this makes the process much easier.
  • For Those Out of State – For those outside of Illinois who have nexus in the state, you must charge sales tax based on the destination of the purchase. This requires careful tracking of locations and the ability to quickly calculate the final sales tax rate for any given location in the state.
  • Shipping and Handling – Shipping is not taxable if it is itemized from the item being purchased. If the two are not separated, however, it is subject to tax and you will need to collect it based on destination of the buyer.
  • Filing Your Return – To file your sales tax return with the State of Illinois, you can use the My Tax Illinois website or you can file the form ST-1 via mail.

How frequently you need to file your sales taxes will be determined by the amount of sales tax you collect on a regular basis. Your frequency will be determined at the time you obtain your permit, and may change at any time. If the Illinois Department of Revenue decides to change your frequency, they will notify you before the next payment is due. The following frequencies apply depending on your liability:

  • Annual – Less than $50 due per year
  • Quarterly – Between $50 and 200 per year
  • Monthly – More than $200 per year

Illinois offers a discount to those who pay their collected sales tax early or on time on a regular basis. 

Penalties and Interest for Late Payments

If you fail to pay your sales tax due to Illinois on time, there will be penalties and fees applied. For a late filing, there is a flat 2% applied to the total of the tax due. If you pay late, you’ll owe 2% of tax due within 30 days, 10% if paid between 30 and 90 days, 15% if paid between 90 and 180 days, and 20% if the tax is more than 180 days late. There are more extreme penalties that may apply for those with serial offenses or if there is evidence of fraud in your returns.

Filing is required for all who have a sales tax permit, including those with a zero return. Penalties can also apply if you don’t file at all, even with a zero return.

sales tax exemption certificate is a form you can fill out yourself certifying that you meet the qualifications outlined for making sales-tax-free purchases. You will need to present this certificate to the vendor from whom you are making the exempt purchase - it is up to the vendor to verify that you are indeed qualified to make a tax-exempt purchase.

The state of Illinois provides several forms to be used when you wish to purchase tax-exempt items.

The "Equipment Exemption Certificate" should be utilized when purchasing equipment which will be used primarily in the process of manufacturing or assembling of tangible personal property for wholesale or retail sale or lease, in the production agriculture, or in the production of graphic arts.

The "Certificate of Resale" is intended for use when items are bough specifically for resale.

 

How do I get a tax exempt certificate in Illinois?

Purchasers may either document their tax-exempt purchases by completing Form CRT-61, Certificate of Resale, or by making their own certificate. A copy of the certificate must be provided to the retailer. Certificates of Resale should be updated at least every three years.

 

What is a resale certificate?

A resale certificate exempts the holder from paying sales tax when they purchase certain goods. Generally, resale certificate holders are businesses that either resell or use the purchased goods as parts in their own offerings. That way, only the buyers of the final product pay sales tax. A resale certificate is also called a sales tax certificate, reseller permit, or sales tax exemption certificate.

If you qualify for a resale certificate, you do not have to pay sales tax when you purchase qualifying goods from a vendor. However, you are still responsible for collecting sales tax from customers.

Again, a sales tax certificate only exempts you from paying sales tax on qualifying goods. It does not exempt you from paying sales tax on items you use in your business (e.g., office supplies). Qualifying goods are either items you plan to resell or use as parts in products or services you sell.

 



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