A Guide to Sales Tax Nexus in Illinois

Understanding sales tax nexus is crucial for businesses operating in Illinois. Sales tax nexus refers to the connection between a business and a state that allows the state to impose sales tax obligations on the business. This guide will cover the essential aspects of sales tax nexus in Illinois and what businesses need to know to remain compliant.

What is Sales Tax Nexus?

Sales tax nexus can be established through various factors, including physical presence, economic presence, and affiliate relationships. In Illinois, the most common forms of nexus are:

Physical Presence: Having a physical location, employees, or inventory in the state.
Economic Nexus: Meeting certain sales thresholds in the state, even without a physical presence.
Click-Through Nexus: A business has nexus if it allows an affiliate to direct customers to its website for a commission.

Physical Presence Nexus in Illinois

If your business has a physical location, such as a storefront or warehouse, in Illinois, you automatically establish sales tax nexus. This includes:

Offices or stores located in Illinois
Warehouses or distribution centers
Employees working in the state

Businesses with physical presence in Illinois are required to collect sales tax on all taxable sales made within the state.

Economic Nexus Laws in Illinois

As of October 2023, Illinois has implemented economic nexus laws that affect businesses without a physical presence in the state. A business is considered to have economic nexus if it meets either of the following criteria:

It makes more than $100,000 in gross sales to Illinois customers in the previous 12 months.
It conducts 200 or more separate transactions for sales delivered into Illinois in the previous 12 months.

If a business meets either of these thresholds, it is required to register for a sales tax permit and collect sales tax from customers in Illinois.

Click-Through Nexus in Illinois

Illinois also recognizes click-through nexus, which applies to online retailers who generate sales through affiliate programs. If a business benefits from referrals from an affiliate marketer in Illinois, and those referrals result in sales, nexus is established. This is applicable when:

The affiliate earns a commission for directing customers to the retailer's website.
The retailer makes sales through an affiliate based in Illinois.

Once click-through nexus is established, businesses must comply with the same sales tax registration and collection requirements as those with physical or economic nexus.

Conclusion

Understanding sales tax nexus in Illinois is vital for any business looking to operate within the state. Whether it's through physical presence, economic thresholds, or click-through arrangements, businesses must be aware of their nexus status to avoid penalties and ensure compliance with Illinois state tax laws. Always consult with a tax professional for guidance specific to your situation and to stay updated on any changes in legislation.

Ensure your business is registered appropriately, collect the correct amount of sales tax from your customers, and remit it to the state to maintain good standing as a trader in Illinois.