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* Rob Karr at the Illinois Retail Merchants Association pushed two revenue producing plans last month which made it into Senate Bills 689 and 690. Here is his explanation of what they do…
1. Marketplaces. Beginning January 1, 2020, marketplace facilitators (think Amazon, Walmart, eBay, Facebook, etc.) have to collect and remit the Illinois Use Tax (6.25%) from all the sellers who sell through the marketplace. Keep in mind that 5% of the 6.25% goes to the state, .25% goes to counties and 1% goes into a fund and is divided among all municipalities by population. Winners here would be the state and, to a small extent, units of local government. They win because compliance will go WAY up. For example, IDOR currently only has 2,900 remote retailers registered and collecting. One marketplace has over 1 million sellers and only 38,000 are in Illinois. Pennsylvania did just this marketplace piece and will collect over $250 million in a full fiscal year.
2. Remote sellers. Beginning July 1, 2020, any remote seller (think Wayfair, Zappos, etc.) must collect and remit the Illinois Retailer’s Occupation Tax (ROT) in effect wherever the product is being shipped. As an example, if someone in Chicago purchases something from a remote retailer, that remote retailer must collect the city of Chicago’s ROT which is currently 10.25%. The winner in this example would be not only the state but the City of Chicago and the RTA. The RTA gets 1.25% of the City’s 10.25%. But not only does Chicago win, all muni’s with a locally-imposed ROT win because compliance shoots way up. Additionally, every muni wins because more remote retailers are collecting meaning the 1% divided by population increases.
Per the SCOTUS South Dakota v. Wayfair decision, the Court is going to judge any collection requirement through the lens of simplicity. Our proposal as contained in SB 690 gives remote sellers a choice: they can collect and remit on their own or they can utilize a Certified Service Provider (CSP) to do the work for them. CSPs (think Intuit, Turbo Tax, Tax Cloud) do the administrative, collection and remittance work on behalf of the remote retailer. The CSP’s services are free to the remote retailer but the CSP, because they are doing the work, keep the Retail Discount. CSPs are doing this work in the 24+ marketplace states and doing some sort of work in every state so none of this is new. So, not only does our proposal make it simple (the CSP will do the work) we make it free to the remote retailer.
Remember that IDOR only has 2900 registered remote retailers. CSPs report they have over 6,000 retailers selling into South Dakota using their services who are not required to collect and remit but do so because it’s just easier.
Thanks to the SCOTUS’s Wayfair decision, everyone wins here, Rich. Retailers win because the competitive advantage remote retailers is erased. Local governments win two ways – their 1% share divided by population grows and, if they have a locally-imposed ROT, they get all of it. Over 50 counties have passed a sales tax for school construction. They win because they can pay their bonds off faster, expand their projects, or both. Counties that have imposed a sales tax for public safety benefit for the same reason. In Chicago, the RTA benefits as noted above.
Nothing changes for an Illinois retailer or someone with a warehouse/distribution center in Illinois. Nothing.
IRMA estimates the two changes will produce $460 million in annual revenues by the second year of full implementation ($230 million the first year).
posted by Rich Miller
Monday, Jun 3, 19 @ 9:51 am
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–Winners here would be the state and, to a small extent, units of local government.–
I’d add the local brick-and-mortar businesses that have been playing by the rules and collecting and remitting the taxes while the remote online giants have enjoyed an artificial price advantage.
Comment by wordslinger Monday, Jun 3, 19 @ 10:05 am
a true upset for sure, time has long since pass to make sales tax all collectible everywhere. To me, that was a longstanding loophole that gave online sellers a huge advantage over local retailers.
Comment by truthteller Monday, Jun 3, 19 @ 10:06 am
As a lowly consumer and Illinois taxpayer I do not oppose this. I’ve tried to accurately pay use tax on all of my untaxed transactions for years and this is WAY less complex for retailers than trying to hold them accountable for the gazillion different local tax rates in the state.
On the other hand, IRMA and others seem to think that the only reason that consumers shop online is to avoid sales tax. Not. True. The formula for retail success has changed from “location, location, location!” to “convenience, convenience, convenience!”. I have little interesting in going into a large brick & mortar store just to see if they have what I want.
Comment by Out Here In The Middle Monday, Jun 3, 19 @ 10:08 am
== The RTA gets 1.25% of the City’s 10.25%. ==
This is a poor explanation. The City doesn’t get the 10.25%. Cook County is also a big winner here, as they get 1.75% of that 10.25%.
Comment by Smalls Monday, Jun 3, 19 @ 10:21 am
Look Online. Go to store to see it. Go home and buy online.
Right now, people go in to brick and mortar, look and feel and touch, and then go back home and buy that item online. This may stem that to a certain extent and may increase those touch buyers pulling the trigger in the store. I am one of those it may encourage to buy in store!
About time this was done!
Comment by metro east gawker Monday, Jun 3, 19 @ 10:25 am
Brick and mortar retail is still dead in the long run, but this approach seems eminently fair. Rules should be he same for all and then marketplace will decide what wins — which seems clearly to be online channels.
Comment by DougChicago Monday, Jun 3, 19 @ 10:29 am
Don’t really want to pay more but it’s only fair and long over due. I remember buying a bunch of big items off of Amazon just before they started charging state sales tax.
I haven’t really slowed down my online purchases since and I agree with Out Here. It’s now about convenience for me and not having to run as many errands at night.
Gotta save on the pending gas tax somehow.
Comment by Cool Papa Bell Monday, Jun 3, 19 @ 10:36 am
What out here in the middle said.
Kind of hard to shop local brick and mortar in Union county when they close after 5pm and aren’t open Saturday afternoons and Sundays.
Comment by efudd Monday, Jun 3, 19 @ 10:41 am
This is less about consumer sentiment and more about helping Illinois based retailers as well as the taxing bodies. It’s been unfair for local retailers to carry the tax load while on-line sellers (especially 3rd party) skate.
Comment by The Bashful Raconteur Monday, Jun 3, 19 @ 11:04 am
== I have little interesting in going into a large brick & mortar store just to see if they have what I want. ==
Some of the chains get this and you can ship their local stores online. Heck, one of the big box hardware stores tells you right down to the aisle, shelf, and bin. Same for the major auto parts chains; I can check their inventory and even buy online and pickup at whichever store has it in stock in a few minutes.
Comment by RNUG Monday, Jun 3, 19 @ 11:42 am
Shop … Not ship
Comment by RNUG Monday, Jun 3, 19 @ 11:43 am
A lot of high-end retailers on Michigan Avenue aren’t really retail stores anymore. They more closely resemble factory show rooms. They carry little inventory, so you can basically try something on, see if it fits, and if you like it, they’ll just ship it to you.
Comment by 47th Ward Monday, Jun 3, 19 @ 11:55 am
I get the fairness issue, but one part of fairness is ovelooked. The state doesn’t provide any supportive services to the online sellers. In fact, it even taxes their internet communication channel. No police or fire protection, no traffice management, no nothing. Their delivery services, UPS,FEdEx pay gas tax. So, what is fair? How about cutting the sales tax in half on the online retailers?
Comment by oh? Monday, Jun 3, 19 @ 12:06 pm
In my limited experience shopping online, the items are roughly the same price as local bricks and mortar, with S&H being less than sales tax, providing a smallish price discount. Unless something happens, online will now be more expensive (sales tax AND S&H). Curious what everyone else’s experience is.
Comment by Anyone Remember Monday, Jun 3, 19 @ 12:23 pm
Oh?, the tax is ultimately paid by the Illinois consumer who uses all of those things.
Comment by Pelonski Monday, Jun 3, 19 @ 1:21 pm
Pelonski….that is very true….and why I said the half rate.
Comment by oh? Monday, Jun 3, 19 @ 1:31 pm
Don’t really want to pay more but it’s only fair and long over due. I remember buying a bunch of big items off of Amazon just before they started charging state sales tax.
I haven’t really slowed down my online purchases since and I agree with Out Here. It’s now about convenience for me and not having to run as many errands at night.
Gotta save on the pending gas tax somehow.
If you’re close to any border, shop online, pick it up at the nearest physical store or Amazon locker, and fill up while on the errand.
Comment by Keith Monday, Jun 3, 19 @ 1:44 pm
I also do what “Out Here In The Middle” said.
Comment by cc Monday, Jun 3, 19 @ 1:52 pm
Any free market capitalist would have to agree this is the correct thing to do. I very much applaud the JB team for doing this.
Comment by Blue Dog Dem Monday, Jun 3, 19 @ 3:02 pm
For larger purchases at least most local brick and mortar stores will really try to compete for your business. We recently purchased a new patio set (dining table, chairs, umbrella and two chaise lounges). We did major research on line including reviews and price comparisons. When we were sure we knew what we wanted we went to a local patio store which we knew carried that brand and asked if they could order the pieces and match the price. They matched it and threw in free home delivery and set up. A person in my community gets the commission. Plus, if anything goes wrong with the items we’ll be dealing with a local establishment not a nameless faceless online person. I hope this new tax scheme helps specialty brick and mortars hang on for at least a few more years.
Comment by Responsa Monday, Jun 3, 19 @ 3:05 pm
Yeah, everybody winns except the consumer who loses, AGAIN
Comment by Tom Gooch Monday, Jun 3, 19 @ 4:39 pm
@oh? - brick and mortar shops pay property taxes for that stuff. Also, the vast majority of brick and mortar shops are online, even if they don’t sell online. So I don’t see how your formulation works.
Comment by Shevek Monday, Jun 3, 19 @ 5:04 pm
oh?, if 100% of the sales tax is paid by the consumer, and the consumer is the one living in the jurisdiction collecting the tax and providing the services, why should it be a half rate? Whether it’s brick and mortar or online, the store is simply a pass through for sales tax collection, and in fact keeps part of the collection for administering the tax. Therefore it doesn’t matter what the rate is for brick and mortar vs. online.
Tom Gooch, the only way your comment makes sense is if you argue for abolishing the sales tax. As long as the sales tax exists it should be paid equally, no matter where the store is located.
My thought is this could be a big deal for smaller towns. Let’s say I live in a small town and typically go to Champaign or Springfield for a lot of my purchases because that’s where the stores are. Those cities would get those sales taxes. Now if I order online and my town has a sales tax, they get the revenue from purchases that they never would have benefited from before. Not that I’m saying that’s a bad thing.
Comment by MyTwoCents Monday, Jun 3, 19 @ 5:54 pm
No mention of the losers. The citizens.
Comment by Bavette Monday, Jun 3, 19 @ 11:31 pm
I don’t have a problem with paying sales tax for online purchases. I’d have to pay the same tax if I shopped in a brick and mortar store.
Comment by Connie Wednesday, Jun 5, 19 @ 1:40 pm