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February 18, 2021

Recently adopted Illinois regulations require certain remote sellers to collect local and state use taxes beginning February 20, 2021

The Illinois Department of Revenue (Department) adopted, via regulation,1 new collection requirements for online marketplace facilitators and remote sellers. These new regulations, which took effect January 1, 2021, address collection and reporting obligations imposed by the "Leveling the Playing Field for Illinois Retail Act."2 Although legal challenges are expected, failure to comply with the regulations at this time may result in significant under-collection of Illinois local taxes and the imposition of understatement penalties. The first returns are due February 20, 2021.

The regulations significantly alter the structure of the Illinois sales tax regime as it applies to remote retailers and marketplace facilitators. Nominally, the regulations were promulgated to impose the requirements of the state and local retailers' occupation tax (ROT) on out-of-state sellers, similar to those imposed on sellers that were physically present in Illinois. Nevertheless, the regulations allow sellers that maintain a physical presence in the state, but fulfill their orders from outside of the state, to continue to collect tax at the state use tax rate of 6.25%, without collecting any additional local tax. Remote retailers or marketplace facilitators that do not have a physical presence in the state must administer and collect the 6.25% sales and use tax, as well as all local taxes, accounting for the hundreds of local tax rates imposed throughout the state.

At this time, the major sales tax systems used by marketplace facilitators and remote retailers, as well as the Department's own systems, are not equipped to handle the changes required under the regulations.

Regulations as filed

The regulations alter the treatment of marketplace facilitators3 and remote sellers.4 Specifically, the Department now considers both to be "retailers" in Illinois that are subject to state and local sales tax obligations and required to collect and remit tax at the actual Illinois destination rate.

The regulations require any remote seller (i.e., a non-Illinois seller with no physical presence in the state), including a marketplace facilitator, to collect and remit tax at the actual destination rate. If the seller has any physical presence in the state, it may collect and remit at only the 6.25% state use tax rate, if items sold to Illinois customers are shipped from inventory located outside of the state.

Examples of remote sellers with physical presence in Illinois that may collect only the state use tax are as follows:

  • A non-Illinois company sells goods via its online platform and locates its inventory outside the state. It maintains a small office in Illinois where its sales professionals temporarily work when meeting with and visiting in-state customers. The company does not have any other physical presence, employees or inventory in the state. Under the regulations, the company is deemed a retailer maintaining a place of business in the state5 for all sales made via its platform and delivered into Illinois. The company is only required to collect the state use tax because it: 1) established physical presence creating nexus and 2) makes internet sales for which all inventory is outside of the state.6
  • A retailer has a franchisee or licensee that operates under its trade name and must collect tax. The retailer itself sells goods via its online platform. All inventory sold by the retailer into the state comes from outside Illinois. The retailer must collect state use tax on all its sales made via the platform as it has established a physical presence as a retailer maintaining a place of business in the state due to the in-state presence of its franchisees.
  • An online retailer with no physical presence in Illinois was required to collect state use tax beginning October 1, 2018, under the state's remote-seller legislation enacted in response to the U.S. Supreme Court's Wayfair decision.7 In January 2021, the retailer decides to open a manufacturing plant in Illinois and in-state sales are sometimes fulfilled from this location. Goods delivered in Illinois from the in-state manufacturing inventory are sourced to that location so the state use tax, plus local tax in effect at that location, applies. For sales for which the goods shipped into Illinois come from outside the state, state use tax applies because the retailer is no longer considered a remote retailer.8

Complex compliance procedures

The Department's systems do not allow for seamless and efficient reporting of the tax to the appropriate local taxing jurisdictions. Remote sellers and marketplace facilitators that registered as use tax collectors must update their online account or contact the Department's Central Registrations group to switch to a retail filer versus a use tax filer.9 The process is cumbersome and requires the manual addition, for example, of each municipality, plus the various tax jurisdictions within the municipality where the goods are shipped.10 Aside from the state having hundreds of taxing jurisdictions, taxpayers may not know where they should be reporting until days before the filing deadline, which is the 20th of every month. To ensure the proper updates are made to the online account, the Department suggests contacting Central Registrations group to expedite the updates.


Businesses that makes sales to customers in Illinois and meet the state's economic nexus threshold, but lack any in-state presence, must begin collecting and remitting state and local ROT at the rate in effect at the customer's location (destination). Businesses should be aware that the Department's website will not automatically allow taxpayers to file on a destination basis. They will find that they currently are "locked out" of the ROT filing section if they do not have a location in the state. Thus, such businesses will need to work with the Department to alter their permit to allow for destination-based ROT reporting.

Taxpayers would have the option of challenging the validity of the new regulations in court and requesting the imposition of an immediate stay upon enforcement of these regulations pending a final determination. At this time, it is unclear whether such actions would be successful. Remote retailers and marketplace facilitators must know that the first returns under the new collection scheme are due on February 20, 2021. Failure to comply with the new system could result in the imposition of penalties and interest.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation
   • Melissa Miller ( )
   • Scott Norton ( )


1 See regulations 86 Ill. Admin. Code Sections 131.101-131.180 .

2 Ill. Pub. Act. 101-0031, Art. 5 as amended by Ill. Pub. Act 101-0604, Art. 15, sec. 15-20 (codified at 35 ILCS 185/5-1 to 185/5-97).

3 86 Ill. Adm. Code 131.130. A marketplace facilitator is defined as any person that has an agreement with an unrelated third-party marketplace seller to facilitate, directly or indirectly through one or more affiliates, a retail sale by the seller by listing or advertising for sale by the seller in a marketplace, tangible personal property that is subject to tax under the ROT Act; additionally, a marketplace facilitator, directly or indirectly through agreements or arrangements with third parties, collects payment from the customer and transmits that payment to the seller, regardless of whether the marketplace facilitator receives compensation or other consideration in exchange for its services. 

4 86 Ill. Adm. Code 131.105. A remote retailer is defined as a retailer that does not maintain within Illinois, directly or by a subsidiary, an office, distribution house, sales house, warehouse or other place of business, or any agent or other representative operating within Illinois under the authority of the retailer or its subsidiary, irrespective of whether such retailer or subsidiary is licensed to do business in Illinois. A retailer that fulfills any orders from its inventory in Illinois is not a remote seller. 

5 35 ILCS 105/2 (defining "retailer maintaining a place of business in this state", clause (9)).

6 86 Ill. Adm. Code 220.115(d)(3).

7 86 Ill. Adm. Code 150.803.

8 86 Ill. Adm. Code 131.110.

9 Ill. Dept. of Rev., Central Registration at 217-785-3707 or

10 Destination-Based Sales Tax Assistance Effective January 1, 2021 - Sales Taxes (