Can the Illinois Department of Revenue excuse a retailer from sales tax it should have collected because its systems weren't ready, or only waive the penalties?

Subject

Penalty Relief vs. Tax Abatement for Late Sales-Tax Collection

Plain-English summary

This is an Illinois Department of Revenue General Information Letter (GIL), not a binding ruling -- it merely points the requester to relevant law rather than deciding a specific case.

A retailer had registered with Illinois in September 2018 after determining it had economic nexus and was required to collect and remit sales tax. But its ERP system and website weren't ready to actually collect the tax. The retailer asked the Department for an exception to the October 1, 2018 collection start date, saying it expected its systems to be complete by early November and that it would be able to start withholding and remitting sales tax by the second week of November 2018.

The Department declined to approve a deferred collection date based on the limited information provided, though it said it would be willing to reevaluate if the retailer supplied more detail -- its size, number of transactions or amount of Illinois sales, and the types of products sold.

More importantly for anyone in a similar spot, the Department explained the general rule: it has no authority to abate (excuse) taxes that were required to have been collected and remitted -- that money was never the retailer's to keep, so there's nothing to forgive. What the Department can do is grant relief from penalties, such as late-payment or late-filing penalties, if the taxpayer shows reasonable cause under 86 Ill. Adm. Code 700.300.

What this means for you

Retailers just crossing economic-nexus thresholds

If your systems aren't ready to collect Illinois sales tax by the date your economic-nexus obligation kicks in, don't expect the Department to simply push back your start date or forgive the tax you should have collected on sales made before you were ready. The tax itself is not something the Department can waive. If you want the Department to consider any accommodation, come with specifics -- your size, transaction volume or Illinois sales amounts, and the types of products you sell -- rather than a general request.

Taxpayers facing late-filing or late-payment penalties

Even though the underlying tax can't be abated, the penalties attached to paying or filing late are a different story. Under 86 Ill. Adm. Code 700.300, the Department can provide relief from penalties like late-payment or late-filing penalties if you can show reasonable cause. If you're behind on collecting or remitting because of a legitimate operational reason (for example, a documented systems-implementation delay), that's the avenue to pursue -- not a request to excuse the tax itself.

Accountants and tax professionals

When a client asks whether Illinois will waive sales tax they failed to collect, the answer is no -- the Department has no authority to abate collected-and-remitted tax obligations. Steer clients instead toward a reasonable-cause penalty-relief request under 86 Ill. Adm. Code 700.300, and toward building a well-documented factual record (system readiness timelines, transaction volumes, sales figures) if they want the Department to meaningfully engage with any request for leniency.

Common questions

Q: Can Illinois waive sales tax that a business should have collected but didn't have systems in place to collect?
A: No. The Department of Revenue has no authority to abate taxes that were required to have been collected and remitted, regardless of the taxpayer's reason for not collecting them.

Q: If the tax itself can't be excused, is there any relief available?
A: Yes -- penalty relief. The Department can waive penalties, such as late-payment or late-filing penalties, based on reasonable cause grounds under 86 Ill. Adm. Code 700.300.

Q: Did the Department grant this particular retailer's request for a delayed collection start date?
A: No. Based on the limited information provided, the Department was unable to approve a deferred collection date, though it said it would be willing to reevaluate its denial if the retailer provided additional specifics about its size, transaction volume or Illinois sales, and the types of products sold.

Q: Is this letter binding on the Department for other taxpayers?
A: No. This is a General Information Letter (GIL), issued under 2 Ill. Adm. Code 1200.120. A GIL simply directs a taxpayer to relevant regulations or other sources of information -- it is not a statement of Department policy and is not binding on the Department, unlike a Private Letter Ruling (PLR) issued under 2 Ill. Adm. Code 1200.110.

Q: What's the difference between a GIL and a PLR?
A: A PLR is issued in response to a specific taxpayer's fact situation and is binding on the Department as to that taxpayer, as long as the facts given were correct and complete. A GIL, like this one, only points the requester toward relevant regulations and other information and does not bind the Department.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0038-gil.pdf

Original ruling text

ST 18-0038-GIL 12/05/2018 MISCELLANEOUS
The Department of Revenue has no authority to abate taxes that are required to have been collected
and remitted. It can, however, provide relief from penalties (late pay or late file penalties, for instance),
based upon reasonable cause grounds. 86 Ill. Adm. Code 700.300. (This is a GIL.)
December 5, 2018
Dear Xxx
This letter is in response to your letter dated November 2, 2018, in which you requested information.
The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are issued by the
Department in response to specific taxpayer inquiries concerning the application of a tax statute or rule to a
particular fact situation. A PLR is binding on the Department, but only as to the taxpayer who is the subject of
the request for ruling and only to the extent the facts recited in the PLR are correct and complete. Persons
seeking PLRs must comply with the procedures for PLRs found in the Department’s regulations at 2 Ill. Adm.
Code 1200.110. The purpose of a General Information Letter (“GIL”) is to direct taxpayers to Department
regulations or other sources of information regarding the topic about which they have inquired. A GIL is not a
statement of Department policy and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You
may access our website at www.tax.illinois.gov to review regulations, letter rulings and other types of
information relevant to your inquiry.
The nature of your inquiry and the information you have provided require that we respond with a GIL.
In your letter you have stated and made inquiry as follows:
In September 2018, we registered with the State of Illinois as we are required to collect and
remit sales tax being that we are economic nexus in the state. However, our ERP system and
website have required extensive development in order to allow us to collect the sales tax and
we are still working through that development. It should be complete by early November and
allow us to start collecting and remitting the sales tax. We are asking if there is an exception to
the October 1st date given we have been actively working on our ERP system to allow us this
functionality? We will be able to begin withholding and remitting the sales tax by the second
week on November (2018). Please advise.
DEPARTMENT’S RESPONSE:
This letter is written to inform you that, based on the limited information you have provided, the
Department is unable to approve your request for a deferred collection date. If you were to provide additional,
specific information regarding your activities, including information such as your size, the number of
transactions or amount of sales to Illinois purchasers, and the number and types of products sold, the
Department would be amenable to reevaluate its denial.
It is important to note that the Department of Revenue has no authority to abate taxes that are required
to have been collected and remitted. It can, however, provide relief from penalties (late pay or late file
penalties, for instance), based upon reasonable cause grounds. We would be happy to discuss this further if
you wish.
I hope this information is helpful. If you require additional information, please visit our website at
www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,
Debra M. Boggess
Associate Counsel
DMB:bkl