If an out-of-state vendor already charged sales tax on equipment shipped to Illinois, does the buyer still owe Illinois Use Tax on it?

Plain-English summary

An Illinois company asked the Department of Revenue about equipment it buys online for an Illinois office, where invoices sometimes show sales tax charged at rates that don't match Illinois' own state (6.25%) or combined state-and-local (in this case 10.25%) rates. The company wanted to know how much Illinois Use Tax, if any, it still owes when an out-of-state vendor has already charged some amount of sales tax.

The Department explained the general framework first: Illinois' Retailers' Occupation Tax (86 Ill. Adm. Code 130.101) taxes retailers selling tangible personal property in Illinois, while the companion Use Tax (86 Ill. Adm. Code 150.101) taxes the privilege of using property in Illinois that was purchased anywhere at retail. Together these make up what's commonly called Illinois "sales tax." If a purchase happens in Illinois, the retailer collects Use Tax at the time of sale; if it happens outside Illinois, the purchaser must self-assess and remit the Use Tax directly.

The key point for this taxpayer is the credit against multistate taxation: to prevent someone from being taxed twice on the same property, 86 Ill. Adm. Code 150.310(a)(3) provides that Illinois Use Tax does not apply to property that was already properly taxed in another state, up to the amount of tax properly due and paid there. So, to the extent tax was validly paid elsewhere at 6.25% or more, no additional Illinois Use Tax is owed on that purchase; if less than 6.25% was paid, the purchaser can credit that amount and owes Illinois Use Tax only on the remainder.

The Department also flagged a related, evolving issue: whether an out-of-state retailer must collect Illinois state-and-local tax at all depends on its physical presence and sales volume in Illinois (35 ILCS 105/2; 86 Ill. Adm. Code 131.115(a), 270.115). Beginning January 1, 2025, under Public Act 103-0983, retailers with an ongoing physical presence in Illinois must collect state and local tax based on the destination of the shipment, even on sales made from their out-of-state locations — a change from the 6.25%-only collection obligation that applied to such retailers before that date. Because the taxpayer's letter didn't include enough transaction detail, the Department gave this general guidance rather than confirming the taxpayer's specific 3.00%/no-tax-owed math.

What this means for you

Businesses that self-assess Illinois Use Tax on out-of-state purchases

When you buy equipment or other tangible personal property from an out-of-state vendor for use in Illinois, check what rate of tax the vendor actually charged and whether it was properly due in that other state. If that amount is 6.25% or more, you likely owe no additional Illinois Use Tax on the purchase. If it's less than 6.25%, you can credit what was paid and owe Illinois Use Tax on the shortfall (state and any applicable local portion). Keep documentation showing the tax was properly paid to the other state, per 86 Ill. Adm. Code 150.1301.

Businesses buying from out-of-state or remote retailers

Whether your vendor should be collecting Illinois state tax only (6.25%) or full state-and-local tax at your delivery location depends on whether the vendor has an ongoing physical presence in Illinois and how it makes the sale. That distinction gets broader starting January 1, 2025, when Public Act 103-0983 requires retailers with an Illinois physical presence to collect state and local tax on out-of-state sales shipped to Illinois purchasers, matching the destination-based rules that already apply to remote retailers exceeding the tax remittance thresholds in 86 Ill. Adm. Code 131.115(a).

Common questions

Q: I paid 8.25% sales tax to an out-of-state vendor on equipment shipped to my Illinois office. Do I owe any Illinois Use Tax?
A: Based on the credit rule in 86 Ill. Adm. Code 150.310(a)(3), if that 8.25% was properly due and paid in the other state, no additional Illinois Use Tax is owed, because it exceeds the 6.25% threshold referenced in this GIL.

Q: What if the vendor only charged 4.25%?
A: You may credit the 4.25% actually and properly paid, and you would owe Illinois Use Tax on the difference between what's due in Illinois and what was already paid, subject to documentation requirements in 86 Ill. Adm. Code 150.1301.

Q: Does it matter whether the purchase happened in Illinois or out of state?
A: Yes, procedurally. If the purchase occurs in Illinois, the retailer collects Use Tax at purchase. If it occurs outside Illinois, the purchaser must self-assess and remit Use Tax directly to the Department.

Q: Is this letter binding on the Department?
A: No. This is a General Information Letter, which only directs taxpayers to relevant regulations and sources; it is not a statement of Department policy and does not bind the Department. A binding Private Letter Ruling requires a separate request under 2 Ill. Adm. Code 1200.110.

Q: Is the collection-obligation rule changing?
A: Yes. Beginning January 1, 2025, under Public Act 103-0983, a retailer with an ongoing physical presence in Illinois that meets the "retailer maintaining a place of business in this State" definition (35 ILCS 105/2) must collect all applicable state and local retailers' occupation taxes on retail sales to Illinois purchasers made from its out-of-state locations, sourced to the Illinois delivery location.

Citations and references

• 86 Ill. Adm. Code 150.310(a)(3) — credit against Illinois Use Tax for tax properly paid to another state, preventing multistate taxation
• 86 Ill. Adm. Code 130.101 — Retailers' Occupation Tax imposition
• 86 Ill. Adm. Code 150.101 — Use Tax imposition
• 35 ILCS 105/2 — definition of "retailer maintaining a place of business in this State"
• 86 Ill. Adm. Code 270.115 — sales activities determining tax jurisdiction/sourcing
• 86 Ill. Adm. Code 131.115(a) — remote retailer tax remittance thresholds
• 86 Ill. Adm. Code 150.1301 — documentation showing tax paid to another state
• 35 ILCS 105/3-55(d) — provision the taxpayer asked about
• Public Act 103-0983 (effective August 9, 2024) — expands collection obligations for in-state-presence retailers beginning January 1, 2025

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2024.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2024/ST24-0027-GIL.pdf

Original ruling text

ST 24-0027-GIL 09/04/2024 USE TAX
To prevent actual or likely multistate taxation, to the extent an Illinois purchaser
has properly paid tax at a rate of 6.25% or greater in another state with respect to
the sale, purchase, or use of that property, no additional Use Tax is owed to
Illinois on such purchase. See 86 Ill. Adm. Code 150.310(a)(3). (This is a GIL.)
September 4, 2024
COMPANY
Attn: NAME
ADDRESS
Dear NAME:
This letter is in response to your letter dated June 24, 2024, 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:
We are working on a use tax review and are wondering what the
applicability of 35 ILCS 105-3-55(d), attached, is to our situation.
Our situation is that we have an office in CITY, IL and we order tangible
personal property (equipment) online to be delivered to that office. In
reviewing our invoices for use tax purposes, we have noticed that
sometimes venders will charge sales tax that does not match the CITY, IL
sales tax rate or even the IL state sales tax rate of 10.25% or 6.25%. Please
see below for the two situations. After reading 35 ILCS 105-3-55(d) it is our
understanding that we would owe use tax of 3.00%, the difference (7.25%4.25%), is situation one. The 3.00% would be 2.00% for state and 1.00%
for local. In situation two, we would owe no use tax as more than the 7.25%
has been charged and collected. Can you please confirm if our
understanding of the two situations is correct?

COMPANY
Page 2
September 4, 2024

1. Situation one - an out of state vender who we get equipment from
   charges us 4.25% of sales tax. The Vender is not from IL and we are
   not aware of what state tax is being charged.
2. Situation two - an out of state vender who we get equipment from
   charges us 8.25% of sales tax. The Vender is not from IL and we are
   not aware of what state tax is being charged.
   DEPARTMENT’S RESPONSE:
   The 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. The Use Tax Act, which complements
   the Retailers’ Occupation Tax Act, imposes a tax 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. If the purchases occur in Illinois, the purchasers must pay the Use Tax to
   the retailer at the time of purchase. The retailers are then allowed to retain the amount of
   Use Tax paid to reimburse themselves for their Retailers’ Occupation Tax liability incurred
   on those sales. If the purchases occur outside Illinois, purchasers must self-assess their
   Use Tax liability and remit it directly to the Department.
   Your question concerns the liability of a purchaser for Use Tax under 35 ILCS 1053- 55(d). However, your letter doesn’t contain sufficient detail of the transactions involved
   for the Department to provide a specific answer. We hope the information provided
   herein, will give you the guidance you seek regarding Use Tax liability.
   Generally, an out-of-State retailer with an ongoing physical presence in Illinois falls
   within the definition of “retailer maintaining a place of business in this State” under Section
   2 of the Use Tax Act, 35 ILCS 105/2. As a result, such retailers incur only a Use Tax
   collection obligation (6.25%), on retail sales made to Illinois purchasers from locations
   outside Illinois. However, if retail sales are made to Illinois purchasers from locations in
   Illinois, the retailer incurs State and local retailers’ occupation tax at the rate in effect
   where the selling activities occur. See 86 Ill. Adm. Code 270.115 for a discussion of sales
   activities which are used to determine the tax jurisdiction for a retail sale. This selling
   activity frequently occurs when sales made to Illinois purchasers are filled from inventory
   located in Illinois.
   Beginning January 1, 2021, an out-of-State retailer without sufficient physical
   presence in this State meeting either tax remittance threshold as set out in 86 Ill. Adm.
   Code 131.115(a) is liable for all applicable State and locally imposed retailers’ occupation
   taxes administered by the Department of Revenue on all sales made to Illinois
   purchasers. In such case, the “remote retailer” is engaged in the business of selling at

COMPANY
Page 3
September 4, 2024
the Illinois location to which the tangible personal property is shipped or delivered or at
which possession is taken by the purchaser. See 86 Ill. Adm. Code 270.115(e).
To prevent actual or likely multistate taxation, the Use Tax does not apply to the
use in Illinois of tangible personal property that is acquired in another state and brought
into Illinois by a person who has already paid a tax in such other state with respect to the
sale, purchase, or use of that property, to the extent of the amount of tax properly due
and paid in the other state. See 86 Ill. Adm. Code 150.310(a)(3). Thus, if tax was properly
due and paid in another state on the tangible personal property shipped into Illinois, then
a taxpayer may credit the amount of that tax paid on its return in determining its Illinois
Use Tax liability. See 86 Ill. Adm. Code 150.310(a)(3). We recommend you contact your
vendor to obtain clarification on the sales taxes being charged. For information regarding
documentation to show the purchaser has paid tax to another state see 86 Ill. Adm. Code
150.1301.
Please note that beginning January 1, 2025, a retailer with an ongoing physical
presence in Illinois that falls within the definition of “retailer maintaining a place of
business in this State” under Section 2 of the Use Tax Act, 35 ILCS 105/2, is liable for all
applicable State and locally imposed retailers’ occupation taxes administered by the
Department on all retail sales made to Illinois purchasers from the retailer’s out-of-State
locations. Such retailer is engaged in the business of selling at the Illinois location to
which the tangible personal property is shipped or delivered or at which possession is
taken by the purchaser. (Public Act 103-0983, effective August 9, 2024).
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,
Thomas Grudichak
Associate Counsel
TG:se