Illinois and Chicago Crack Down on Sales/Use Tax Compliance
Just recently, the State of Illinois Department of Revenue and City of Chicago Department of Revenue have begun efforts to enforce compliance of businesses’ obligations regarding payment of city and state sales and use tax. To that end, the Departments have been mailing letters to companies identified as those that may owe Illinois and Chicago sales tax or use tax.
These letters describe when and why the sales and use tax obligations arise, and offer an opportunity for businesses to come forward and voluntarily pay these taxes. Both Departments refer to these as a “Voluntary Disclosure Program”. In return for participating in the programs, a business’s liability is limited to the last four years and late filing and late payment penalties are waived. However, the Departments may still audit participants for the periods included in the program.
If the business chooses not to participate, the business is placed in an “audit pool” and may be selected for an audit. In such case, the audit period will cover the previous six years and penalties will become due.
This plan, obviously a desperate attempt to collect revenue that both the city and state are needing, may affect many businesses, especially retailers, manufacturers, and contractors.
The Chicago Department of Revenue is focusing on the collection of the city use tax. The Chicago use tax is imposed upon the privilege of using tangible personal property purchased from a retailer outside of the City of Chicago. The Illinois Department of Revenue stretches its focus to the Illinois use tax and Illinois sales tax. The Illinois use tax is imposed upon the privilege of using general merchandise purchased anywhere at retail from a retailer. Generally, if a business purchased merchandise where the seller did not charge a sales tax, it is likely that the use tax is owed. The Illinois sales tax is owed by businesses who sell general merchandise.
What to do? If you receive one of these notices, it is best to determine whether you 1) are subject to the Illinois and Chicago sales/use tax; 2) exempt from payment of these taxes; or 3) brave enough to take your chances in the audit pool.