Here in Illinois, we often hear or see advertisements from neighboring states highlighting their lower taxes. Many of these ads talk about moving to another state for lower income tax, but there’s also ads focusing on sales tax. The idea is pretty simple. Take a trip across state lines and enjoy lower sales tax on your shopping.
Using a similar line of thought, you can shop online or buy from a catalog. Many such retailers don’t have to charge sales tax because they don’t have a physical, brick and mortar presence in the state.
None of these methods, however, actually remove an Illinois taxpayer from any tax exposure. This is because in addition to sale tax — more technically, the Retailer Occupation Tax (ROT) and the Service Occupation Tax (SOT) — Illinois also has laws for use tax.
It works like this. If you purchase something and you use it in Illinois (and you’re an Illinois resident), as long as you paid sales tax equal to or greater than Illinois’s rate (6.25% for general merchandise, 1% on qualifying food and drugs) you don’t owe anything else to the Illinois Department of Revenue. Importantly, it doesn’t matter if you paid that sales tax to Illinois or not. If, however, you paid less than the Illinois rate, and you use the product in Illinois, then you owe use tax equal to the difference between the tax you paid and Illinois’s rate.
An example. Let’s say you were on vacation in a state with a sales tax rate of 3%. You buy something and pay the sales tax on that transaction and you bring that product back to Illinois. By using that item in Illinois, you now owe 3.25% use tax to IDOR (6.25%, the Illinois rate, less the 3% you already paid).
For several years now the Illinois annual income tax return has included a line item regarding use tax and that line cannot be left blank, which might open a taxpayer to a charge of filing a false return.
Horowitz Law Offices represents taxpayers before the IRS and the Illinois Department of Revenue on a variety of tax matters including sales and use tax audits, criminal tax cases and motor vehicle tax audits. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org.