How long does the Illinois Department of Revenue have to assess additional Retailers' Occupation Tax (sales tax) or Use Tax after a return is filed, and is there a special 6-year rule like the one for income tax understatements?

Plain-English summary

A taxpayer asked the Illinois Department of Revenue how long the state has to assess additional Retailers' Occupation Tax (Illinois's version of sales tax) after a return has been filed, and whether there is an extended assessment period — like the 6-year rule that applies to income tax when more than 25% of income is omitted — for a substantial underpayment of sales tax.

The Department explained that, generally, a notice of tax liability under the Retailers' Occupation Tax Act must be issued within 3 to 3.5 years of when the taxable gross receipts were received (measured from the next January 1 or July 1). If the taxpayer files an amended return, that window can extend to cover up to 3 years before the January 1 or July 1 following the date the amended return was filed. Under the Use Tax Act, the period runs from when the tax is due, and is extended to 6 to 6.5 years for non-filers. Critically, if a return is never filed, or a return is fraudulent, there is no statute of limitations at all under the Retailers' Occupation Tax Act (with a 6-year limit instead applying to Use Tax Act non-filers).

The Department also confirmed there is no equivalent to the Income Tax Act's rule extending the assessment period to 6 years when a taxpayer omits more than 25% of income (35 ILCS 5/905(b)). Nothing comparable exists for the Retailers' Occupation Tax Act or the Use Tax Act — so even a large underpayment of sales tax on a timely-filed, non-fraudulent return is still subject only to the standard 3-to-3.5-year window (unless a waiver is signed).

What this means for you

Retailers and other sales-tax filers

If you file your Retailers' Occupation Tax returns on time and they aren't fraudulent, the Department generally has only 3 to 3.5 years to issue a notice of tax liability, even if you significantly underpaid the tax due. There is no "25% omission" exception like there is for income tax that would extend this window to 6 years.

Businesses that never filed a required return

If a required Retailers' Occupation Tax return was never filed, there is no statute of limitations — the Department can assess the tax at any time. Under the Use Tax Act, non-filers instead face an extended 6-to-6.5-year assessment window rather than an unlimited one.

Accountants and tax professionals

When advising clients on exposure from a sales/use tax underpayment, remember the timing rule differs by statute: 35 ILCS 120/4 governs the standard 3-to-3.5-year ROT window (extendable via amended returns), 35 ILCS 120/5 removes the limitations period entirely for fraud or non-filing under the ROT Act, and 35 ILCS 105/12 sets the parallel Use Tax Act rules, including the 6-year non-filer period. Also watch for signed waivers, which can extend any of these periods at the Department's Audit Bureau's request.

Common questions

Q: How long does Illinois have to assess additional Retailers' Occupation (sales) Tax after I file my return?
A: Generally 3 to 3.5 years from when the taxable gross receipts were received, measured from the next January 1 or July 1. If you later file an amended return, the window can extend to cover up to 3 years before the January 1 or July 1 following the amended filing.

Q: What if I never filed a required Retailers' Occupation Tax return?
A: There is no statute of limitations under the Retailers' Occupation Tax Act for a failure to file (or for a fraudulent return) — the Department can issue a notice of tax liability at any time.

Q: Does the Use Tax Act work the same way?
A: Similarly, but the clock runs from when the tax is due rather than when gross receipts are received, and for non-filers the period is extended to 6 to 6.5 years rather than being unlimited.

Q: Is there a 6-year rule for sales tax like the 25%-income-omission rule under the Income Tax Act?
A: No. The Department confirmed there is no provision under the Retailers' Occupation Tax Act or the Use Tax Act comparable to the 25%-of-income-omission rule in 35 ILCS 5/905(b) of the Illinois Income Tax Act. A filed, non-fraudulent ROT return remains subject only to the standard 3-to-3.5-year period regardless of the size of the underpayment.

Q: Can the Department extend these deadlines?
A: Yes, if the taxpayer signs a waiver secured by the Department's Audit Bureau. Without a waiver, no assessment can be made after the applicable statute of limitations has expired.

Citations and references

Statutes and rules:

• 35 ILCS 120/4 (Retailers' Occupation Tax Act — 3-to-3.5-year notice-of-tax-liability window; amended-return extension)
• 35 ILCS 120/5 (Retailers' Occupation Tax Act — no limitations period for fraudulent returns or failure to file)
• 35 ILCS 105/12 (Use Tax Act — statute of limitations; 6-year rule for non-filers)
• 35 ILCS 5/905(b) (Illinois Income Tax Act — 6-year period for 25% income omission; no ROT/Use Tax equivalent)
• 86 Ill. Adm. Code 130.101 (imposition of Retailers' Occupation Tax)
• 86 Ill. Adm. Code 130.815 (Retailers' Occupation Tax Act statute of limitations)
• 86 Ill. Adm. Code 150.101 (imposition of Use Tax)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/ST-23-0009-GIL.pdf

Original ruling text

ST-23-0009-GIL 05/04/2023 STATUTE OF LIMITATIONS
Except in the case of a fraudulent return or the failure to file a return, the statute
of limitations under the Retailers’ Occupation Tax Act for the Department to issue
a notice of tax liability is 3 to 3.5 years from when the taxable gross receipts were
received. Under the Use Tax Act, the statute of limitations runs from when the
tax is due and is modified to 6 to 6.5 years in the case of non-filers. 86 Ill. Adm.
Code 130.815. (This is a GIL).
May 4, 2023

NAME
COMPANY
ADDRESS
Dear NAME:
This letter is in response to your letter dated January 31, 2023, 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:
Retailer’s Occupation Tax Question.
I have found that there is a 3-year statute of limitations (based on January
and July) when a return has been filed. 35 ILCS 120/4
It looks like the statute of limitations for INCOME taxes is six-years if there
is a 25% understatement on the return. 35 ILCS 5/905(b).
I cannot find an equivalent 6-year statute of limitations for a 25%
understatement that applies for the Retailer’s Occupation Tax. Is there a
corresponding rule for ROT, or is it only 3-years (assuming a return was
filed) no matter what?

COMPANY/ NAME
Page 2
May 4, 2023
If there is a 6-year statute applicable to a substantial omission for ROT,
please provide the citation of the statute.
Thank you,
After the Department’s initial email response, Taxpayer provided the following via
email:
Thank you for your reply. My question was more on the state's ability to
assess additional tax, it was not on taxpayer's ability to request a refund.
If a taxpayer filed a ROT return with Illinois in DATE and mistakenly
underpaid the ROT due by 30%, is the state still able to assess tax for the
underpayment, or has the statute of limitations expired?
Thank you,
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged
in this State in the business of selling tangible personal property at retail to purchasers
for use or consumption. See 86 Ill. Adm. Code 130.101. In Illinois, Use Tax is imposed
on the privilege of using, in this State, any kind of tangible personal property that is
purchased anywhere at retail from a retailer. See 86 Ill. Adm. Code 150.101. These
taxes comprise what is commonly known as "sales" tax in Illinois.
Pursuant to the Illinois Retailers’ Occupation Tax Act, generally, a notice of tax
liability must be issued 3 to 3.5 years from when the taxable gross receipts were
received. No notice of tax liability shall be issued on and after each January 1 and July
1 covering gross receipts received during any month or period of time more than 3
years prior to such January 1 and July 1, respectively. However, in the case of an
amended return, the time period to file a notice of tax liability will be extended to cover
not more than 3 years prior to January 1 or July 1 from the date of the filed amended
return. See 35 ILCS 120/4; see also 86 Ill. Adm. Code 130.815.
Under the Retailers’ Occupation Tax Act, in case of failure to file a return, or in a
case of a fraudulent return, there is no statute of limitations. See 35 ILCS 120/4 and 5;
see also 86 Ill. Adm. Code 130.815. The same statute of limitations applies under the
Use Tax Act, except that, in the case of failure to file a return, there is a six-year statute
of limitations and except that the time limitation runs from the date the tax is due instead
of when gross receipts are received. 35 ILCS 105/12.

COMPANY/ NAME
Page 3
May 4, 2023
The statute of limitations for issuance of a notice of tax liability will expire as
provided above unless waivers are secured by the Department’s Audit Bureau.
Assessments cannot be made after the expiration of a statute without waiver.
There is no provision under the Retailers’ Occupation Tax Act or the Use Tax Act
comparable to the omission of more than 25% of income provision under subsection (b)
of Section 905 of the Illinois Income Tax Act. See 35 ILCS 5/905(b).
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,

Kimberly A. Rossini
Associate Counsel
KAR:dlb