Under the Illinois budget bill signed June 16, 2025, Illinois enacted an important update to the process the Department of Revenue takes when a taxpayer files a return with incorrect accompanying location documentation. Currently, if a taxpayer remits an Illinois state tax return where the accompanying ST-2 schedule is incomplete or incorrect, the Department of Revenue rejects the return as unprocessable and imposes a penalty. Under the new law, after January 1, 2026, if a return is received without supporting documents or with incomplete or incorrect supporting documents, the Department will instead assess a 15% tax on the gross receipts of incorrectly reported sales. Taxpayers will not be required to file an amended return as the Department is empowered to simply notify them of any corrections made. Any balance owed will be reflected in a Notice of Tax Liability from the Department. This change is reflected in all of Illinois’ taxes: the Retailer’s Occupation Tax (ROT), Use Tax (UT), Service Occupation Tax (SOT), and Service Use Tax (SUT).
Taxpayers filing in Illinois should take care to ensure they are correctly documenting and reporting sales when submitting returns. Since the Department will only review and issue corrections, though taxpayers may be relieved to avoid the penalty for returns that cannot be processed, the 15% rate is higher than highest rate in Illinois of sales tax (11% as of June 2025, 8.86% average), and taxpayers will be required to make up shortfalls. For taxpayers who file incorrect returns, amended returns may be considered to correct the issues. (Illinois HB 2755, Signed by Governor JB Pritzker June 16, 2025)