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Illinois Proposes New Rules for Sales Taxes on Shipping Costs
The Illinois Department of Revenue (IDR) has proposed new sales tax regulations regarding shipping and delivery charges on the sale of tangible personal property. Currently, Illinois imposes sales tax on charges for tangible personal property that is shipped or delivered to the purchaser. There is an exception if the shipping costs are part of a separate agreement or contract.
The proposed rules are under review by the IDR and are available for public review. There may be revisions to the rules before a final version is made available for public comment.
Under the new rules, these changes would apply retroactively to 2009 due to the Kean v. Wal-Mart Stores, Inc. case from that year. Prior to the Wal-Mart decision, transportation and delivery costs were not part of the tax base in Illinois, and were not subject to tax if separately stated.
Some shipping charges would not be taxed
Under the proposed regulations, if a seller offers the purchaser the option to pick up the property and shipping charges are separately stated — then the charges for shipping are not subject to tax. The location to pick up the property sold does not have to be located in Illinois or within a certain distance of the taxpayer.
The proposal also addresses tax-exempt items. If exempt items are sold and delivered with items that are subject to the tax, no sales tax would be levied on the shipping charges if the exempt items cost more than the taxable items.
Likewise, if items subject to a lower sales tax rate are sold with items subject to the full rate, then the lower rate applies if the price of the low-rate items is higher than the ones subject to the full sales tax.
Costs for handling or moving property that are not outgoing transportation and delivery charges would remain taxable under the proposed regulations.
Review, refunds, and how we can help
Taxpayers who purchase tangible personal property in Illinois should consider reviewing whether their purchase agreements allow the goods they purchase to be picked up, potentially saving the sales taxes they might otherwise pay on shipping.
If the modified regulation is applied retroactively as proposed, there may also be refunds of sales taxes available. Taxpayers that allow customer pick-up should determine if they would no longer need to charge sales taxes on delivery costs. Our experienced tax professionals are ready to help with any questions related to these proposed tax changes.