Calculating, collecting, and remitting state and local sales taxes can be challenging for any business. That is particularly true for online retailers—especially for those selling to buyers in multiple states with different nexus rules. You may not even be aware that you’ve triggered sales tax nexus in multiple states, which can result in a tax nightmare when the oversight is ultimately discovered.
Whether you are trying to prevent Illinois tax nexus issues or have already received a bill or notice from Illinois, whether your business is based in the state or not, Gordon Law Group’s tax lawyers can help.
Our attorneys can review your business for sales tax nexus in all 50 states, helping you understand your obligations. Gordon Law Group can also help if you are undergoing an Illinois Department of Revenue sales tax audit.
Understanding Sales Tax Nexus Rules
While the word may seem confusing, “nexus” simply means a connection to the state for tax purposes. Where you have nexus, you must follow state and local tax laws.
Sales tax nexus can be complicated for business owners operating or selling to customers in multiple states, because each state has its own rules regarding who has sales tax nexus. Businesses may have “physical nexus,” “economic nexus,” or both.
Physical nexus generally means that the business has a physical presence in the state. This can include:
- A permanent or temporary office
- A distribution hub
- A sales, service, or repairs office
- A warehouse or another location where inventory is stored
- Or any other place of business
Your business could also have physical nexus if it has a permanent or temporary agent, employee, representative, or third-party affiliate doing business in the state on behalf of your company.
If you do not have physical nexus, but sell tangible personal property to residents in another state, you may have economic nexus in that state. This simply means your business has exceeded a state-specific minimum sales threshold to the state’s residents, calculated as a number of transactions or a dollar amount.
Illinois Nexus Rules Apply to Illinois-Based and Remote Sellers
In Illinois, retailers physically located in the state and remote retailers selling tangible personal property to Illinois purchasers are required to collect and remit state and local taxes if they have physical or economic nexus.
Illinois economic nexus is triggered when a business makes more than $100,000 in sales (cumulative gross receipts, including shipping) of tangible personal property to Illinois purchasers in the previous four calendar quarters, or when a business makes 200 or more separate sales transactions in that same period with Illinois purchasers.
Wondering if your business is subject to Illinois remote seller sales tax? Calculate your sales and transaction numbers for the preceding 12 months on the last day of May, June, September, and December (for customers based in Illinois). However, certain sales, such as those completed through a marketplace facilitator like Amazon, may not count towards your threshold. If you want to be 100% certain, contact our tax attorneys to conduct a thorough sales tax nexus review for your business.
What to Do if You Have Sales Tax Nexus in Illinois
If you have sales tax nexus in Illinois, you will need to register as a seller, collect sales taxes from your customers, and remit those taxes to the state (based on the rates for the destination of the property you sold). The state will assign you a filing frequency when you register, which could be monthly, quarterly, or annually.
It is important to note that when you have Illinois tax nexus, reports must be filed even if you have no sales or taxes to report or pay for the filing period.
Missing filing deadlines or paying your Illinois sales taxes late can be costly. The late filing penalty is 2% of the taxes due, in addition to late payment penalties, which can be as high as 20% of the taxes owed when paid more than 180 days after the due date. Serial offenders or those found guilty of sales tax fraud face additional penalties and criminal charges. However, voluntarily disclosing a failure to file may help mitigate some of these penalties.
Concerned About Sales Tax Nexus? Choose a Tax Professional With Sales Tax Experience
If your business has potential sales tax nexus issues, it’s important to work with a tax professional with experience in this specific area. Sales taxes and nexus issues can be complex, and not all tax professionals know how to deal with them.
The attorneys at Gordon Law Group have years of experience helping businesses of all sizes, in all industries, understand and address their sales tax nexus obligations. Contact us today to schedule a consultation.
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