online tax collection

Illinoisans are likely to have to pay more sales tax when shopping online after state lawmakers made two big changes to tax rules. State tax collections are expected to increase by $288 million this year.

First, marketplaces – think eBay or Etsy – will be required to collect the 6.25 percent state sales tax on behalf of third-parties selling to Illinois customers. Until this legislation, it’s been up to each seller to collect the tax. And, Rob Karr, president of the Illinois Retail Merchants Association, said many do not.

Dave Plunk has run Music Makers in Galesburg for more than 15 years, occupying two floors of a three-story building on the town’s main street with rows of guitars, amps and other music equipment.

A year after Gov. Pat Quinn signed a bill aimed at collecting sales tax from online retailers, the state is still struggling to get revenues from sellers such as Amazon.com, and it seems that Illinois and other states may be out of luck until a federal solution can be found. 

The U.S. Supreme Court ruled in 1992 that states could not make businesses outside of their borders collect tax on purchases made by state residents. But if a business has a brick and mortar presence in a state, such as a store, it must collect state taxes on catalog and Internet sales in the state, too. 

One Illinois business intends to leave the state before a new plan to collect taxes on Internet sales takes effect in July. “I don’t have a choice,” says Tim Storm, chief executive officer of FatWallet, an Internet marketing company. “It’s a situation where I can’t take a hit on 40 percent of our revenue and continue to operate in the state of Illinois.”