What is Sales Tax Nexus Anyway?

Your business owes sales tax in any state where it has “sales tax nexus”. In short, if you have sales tax nexus you need to collect and remit sales tax. If you don’t have sales tax nexus, you generally don’t need to get a permit. 

Sales tax nexus is a legal term that means you have crossed a threshold and now have a sales tax collection responsibility in the state. Nexus can be created by having a physical presence, economic presence, or by other factors.  Nexus rules vary by state and retailers have specific nexus rules based on where they have people, property or inventory.  

What Should You Do Once You Determine You Have Sales Tax Nexus?

Once you determine that you have sales tax nexus in Illinois, your next step is to register for a sales tax permit in the state.  Check out our blog post on getting a sales tax permit in Illinois for more information about that process.  If you are not interested in doing the work of getting the permit yourself, TaxValet handle the permit registration for you with our Sales Tax Permit Registration Service.

Common Ways to Have Sales Tax Nexus in Illinois

1. Economic nexus in Illinois

If you made $100,000 of sales in the previous four quarters OR 200 transactions into Illinois, then you are required to register for, collect and pay sales tax to the state. If you meet this threshold, it does not matter if you have a physical presence in Illinois.  Nexus has been created based on your volume of sales.

For more information, please see page 16 of SB 2577. 

If you need help determining which states you have crossed economic nexus thresholds, check out our Sales Tax Starter Kit service.

2. Physical presence in Illinois

The following creates physical presence nexus in Illinois. If you have any of the following in Illinois, you will need to get a sales tax permit:

1. An office, distribution house, sales house, warehouse or other place of business. 
2. An employee, contractor, salesperson, agent or representative in Illinois.

For more information about physical presence in Illinois, please see the Illinois Department of Revenue Regulations Title 86, Part 150, Section 150.

If you need help determining which states you have a physical presence in, check out our Sales Tax Starter Kit service.

Do You Need a Sales Tax Permit in Illinois If You Only Sell on Marketplaces?

Illinois is not a currently a marketplace collection state, however, marketplace collection laws take effect on 1/1/2020. Amazon, eBay, and other marketplaces are NOT required to collect or pay sales tax in Illinois currently. Therefore, you, as the seller are responsible for collecting and remitting the sales tax due in Illinois. 

Once marketplace collections begin in Illinois, the marketplace will collect and remit taxes in Illinois and you will not be required to get a sales tax permit. 

For more information about marketplace only sellers, see Illinois Department of Revenue Code 86III. Adm Code 150.

If you are an e-commerce seller who is unsure of where you need to get a sales tax permit, check out our Sales Tax Starter Kit service. 

A Note about Chicago

While the regular city and state sales tax for sales into Chicago are remitted directly to the state, Chicago has a list of other taxes due for sales within the city that must be remitted directly to the city of Chicago. These taxes include a tax on bottled water, checkout bags, cigarettes and nicotine products, soft drinks, liquor, tires, and other products and services. If you have nexus in Chicago, you may need to register for one of these tax types as well. 

For more information, see City of Chicago Tax List and Tax Division FAQ.

Related Blog Content

How to Register for a Sales Tax Permit in Illinois

How to File and Pay Sales Tax in Illinois

Disclaimer: Our attorney wanted you to know that no financial, tax, legal advice or opinion is given through this post. All information provided is general in nature and may not apply to your specific situation and is intended for informational and educational purposes only. Information is provided “as is” and without warranty.