Illinois Updates Destination Based Sourcing Rules. Effective January 1, 2025, a provision of Illinois S.B. 3362 goes into effect which makes certain Illinois retailers responsible for destination-based sourcing for sales tax purposes. Illinois retailers who maintain a place of business in Illinois and sell tangible personal property from a location (or locations) outside Illinois will be required to collect all applicable state and local taxes at the location to where it is shipped or delivered (or the location where the purchaser takes possession).
This provision is important for many reasons, notably that it attempts to create more consistency in tax collection and promotes more fair tax collection and allocation. This regulation streamlines the definition of what sourcing rules are to be applied to all out of state retailers, when they are shipping goods from outside the state. It will ensure that tax is being collected on the item in the location it is actually being used or consumed, rather than collecting at the point of sale. By using the destination rate, the tax revenue can also be correctly matched to the final destination (locality) of the goods. No change has been made for in-state retailers who deliver from inventory located within Illinois. These sales continue to be sourced at the retailer’s origin location.
While retailers who maintained physical nexus in Illinois but shipped orders from outside of Illinois had previously been able to avoid destination-based sourcing, this new law will require them to keep and report accurate records. Taxpayers doing business in Illinois should ensure they have their tax systems set up properly for destination-based sourcing in Illinois. (Illinois S.B. 3362, enacted 8/12/2024)
UPDATE: Illinois provided guidance on determining physical presence. Get the details here. (2/14/2025)