Illinois Retailers Occupation Tax Impact for Amazon FBA Sellers
Illinois Retailers Occupation Tax or “ROT” is effective this year, January 1st, 2020, is designed to “Level the Playing Field.”.
Update: As of January 1st, 2021, Amazon will collect the ROT tax for Illinois. If you are only selling on Amazon, you may close out your Illinois sales tax account.
The ROT tax is roughly a 2%-4% additional tax when sales are made FROM an Illinois warehouse TO an Illinois customer.
This levels the field because Illinois is essentially charging sellers who have no physical presence in the state, the same rates as brick and mortar stores.
Sellers fall into three categories which determines their ROT collection requirements:
- Remote sellers with economic nexus only: Sellers are subject to the combined state and local ROT at the purchaser’s location.
- Remote sellers with a physical presence due to inventory: Sellers are subject to ROT on sales where the “ship from” location is within Illinois. Shipments from outside of Illinois into the state collect the use tax only.
- In-state seller: Sellers charge the combined state and local ROT at the brick and mortar location.
You may be thinking, “Amazon collects and remits sales tax in Illinois for me so I don’t have to worry about this ROT.” This is only partially true.
While Amazon has said they will calculate, collect and remit the 6.25% Use Tax (sales tax) for sellers when ROT tax is not incurred, Amazon is currently not collecting the additional tax at all. See the correspondence below from Amazon:
What this means is that Amazon sellers are responsible for being separately registered with the IDOR as a business and are required to remit this additional ROT tax to Illinois (when it is ROT tax liable), undoubtedly out of their pocket because Amazon is not collecting this tax from the purchaser.
The Illinois Retailers Occupation Tax creates a problem for sellers who don’t know about this additional tax and are not registered with Illinois. When they make intrastate sales in Illinois, they are unknowingly creating nexus and tax liability.
Your Next Steps
You should first look at your Amazon Seller Account and see if you have been making intrastate sales in Illinois. As per the correspondence from Amazon, “You can identify your orders shipped to Illinois and the tax amount calculated, collected, and remitted by Amazon using your Payments Date Range Report.
This report can be sorted by state and city. Specific tax calculation details will be available in your Marketplace Tax Collection report.”
After identifying your tax liability, your next steps should be to either register with IDOR as a business and start filing this tax now, which will open you up for paying penalties and interest on the ROT tax you owe at a later time, should the IDOR audit you.
Or, you can apply for Illinois’ Voluntary Disclosure Agreement (VDA) program. More detailed information about the VDA program can be found HERE on their site, where they provide a helpful in-depth explanation and an overview of the process.
To summarize, the VDA would grant you certain benefits such as:
- A limited look-back period of four years.
- Elimination of all penalties associated with the voluntary disclosure liability upon payment of all tax and interest (within 60 days of billing).
- Limited any possible audit period to the approved four-year disclosure period.
IDOR offers a payment plan should you not be accepted into the VDA program. You would just have to submit a CPP-1 to IDOR. We are unclear if you can request a payment plan if you are in the VDA program.
Support with Your Illinois Sales Tax Registration
Still don’t know where to start? Don’t know if you should even be worried about this or if you have nexus?
Here at Sales Tax System, we know what questions to ask and what resources to check to determine your tax liability and how to resolve it.
Don’t know how to register or want an expert to handle it? Sales Tax System makes it easy to navigate through the registration process. With our 8 Step Sales Tax Registration Process, you can be confident that everything will be handled correctly and efficiently.
Besides our vast knowledge and experience in state tax registration, we also offer assistance in getting into compliance with states. We know how to properly handle past sales tax due (or in this case, ROT tax).