Starting January 1, 2021, many direct-to-consumer (DtC) wine shippers will face an added sales tax burden on their shipments to Illinois. The Illinois Department of Revenue (DOR) published FY 2021-06, which explains the upcoming change.
Under the recent “Leveling the Playing Field for Illinois Retail Act,” the state will require all remote sellers with economic nexus in the state, including DtC wine shippers, to collect and remit state and local taxes at the rate effective at the destination address for their shipments. Affected remote sellers will be required to register with the state for Retailers Occupational Tax in order to properly remit these taxes.
Previously, Illinois permitted all retailers selling to Illinois residents from locations outside of the state to collect and remit only the state sales tax rate of 6.25% for all sales in the state. Going forward, though, all remote sellers with economic nexus will now need to apply destination-specific local sales tax rates.
Illinois defines economic nexus as making either over $100,000 in annual revenue in the state or 200 separate transactions to Illinois residents in one year. Any remote seller, including DtC wine shippers, that meets either of these thresholds will need to register for Retailers’ Occupational Tax and collect and remit based on destination-specific sales tax rates.
Notably, DtC wine shippers who do not meet the economic nexus thresholds will not see any change in their sales tax burden in the state. Such wine shippers may maintain their Use Tax registration and continue to collect and remit just the 6.25% state rate. This is a requirement imposed on them as holders of a Winery Shipper’s License in the state, as other remote sellers who do not have economic nexus in the state do not have any sales tax burden in the state.
This change does not in any way affect a DtC wine shipper’s Illinois Liquor Gallonage Tax (excise tax) burden.
What Should I Do If I Have Economic Nexus in Illinois?
The most important thing for a DtC wine shipper to do now is first recognize if they are affected by this change in policy. They should review their previous 12 months of sales into Illinois to see if they have either made over $100,000 in revenue in the state or made over 200 separate transactions to Illinois residents.
If they meet either of these thresholds, they will need to update their tax registration with the Illinois DOR. This can be done by logging into their MyTax Illinois account, clicking on “Register for New Tax Accounts” and selecting the “Retailer” option. The Illinois Central Registration Division can provide help where needed either at 217-785-3707 or REV.CentReg@illinois.gov.
Once this registration has been completed, starting January 1, 2021, the DtC wine shipper will need to ensure they are collecting sales tax from their sales to Illinois residents based on the tax rate effective at the Illinois resident’s address. Illinois is developing a Tax Rate Finder tool to help with this determination.
Sovos ShipCompliant users will also be able to adjust their tax preferences and reporting settings to comply with their new sales tax needs in Illinois. Further notices will be provided when this option is made available by the end of the year. Any tax returns due in January should still be reported under the DtC wine shipper’s Use Tax account and remit the 6.25% state rate. Only sales made after January 1, 2021 will need to apply destination-specific tax rates.
What Should I Do If I Currently Do Not Have Economic Nexus in Illinois?
If you are a DtC wine shipper making sales under the economic nexus thresholds, then you should see no change in your tax burden. As long as you are registered with the Illinois DOR for Use tax and are current with your tax filings, you can continue to collect and remit the 6.25% state rate.
However, DtC wine shippers in this position must still remain vigilant for if and when they do meet the state’s economic nexus thresholds.
According to the DOR guidance, a remote seller should review their sales on a quarterly basis. By the last day of March, June, September, and December, they should review whether in the previous 12-month period they have ever exceeded $100,000 in revenue or made more than 200 separate transactions. If they have met either threshold, then they will need to collect and remit local sales tax based on the destination addresses beginning on the first day of the quarter immediately following the end of that 12-month review period.
Illinois’ new sales tax rules are just the latest in a bevy of adjustments states have made over the last couple years as they impose greater tax obligations on remote sellers and establish processes to make those obligations both easier to manage and more in line with in-state retailers’ tax burdens.
Earlier this year we saw changes to Louisiana sales tax rules and the imposition of the first city-managed sales tax burden on remote sellers by Chicago.
Even though DtC wine shippers have been managing these types of interstate sales tax obligations due to their unique regulatory relationships within states, it is critical that they remain aware and actively respond when states adjust their sales tax rules.
Learn how Sovos ShipCompliant can help you manage your tax and reporting obligations.