Illinois requires that we collect taxes from everyone regardless of state

Accounting & Taxes
1

Our business is based in Illinois, and taxes have been setup for this state.

However, we noticed that shopify is not collecting the required taxes for customers outside of illinois.

The state of Illinois requires that we charge sales tax on ALL sales from customers that live outside of Illinois at a rate of 6.25%.

Currently it is IMPOSSIBLE to set this up.

This needs to be fixed immediately!

1 Like
2

Hey @StevenFGM ,

Thank you for reaching out to the Community! I can certainly provide guidance on setting up taxes for the state of Illinois. As Illinois is an origin state with special tax rules, you will want to refer to our US Tax Reference Documentation for further insight on what this entails.

Shipping specifically is not taxable if the actual cost of shipping is listed on a separate line on the invoice and there is a choice of means to get the product (i.e local pick up). You can however, choose whether you’d like to charge taxes on shipping.

Illinois also follows Origin Souring rules for sales within the state and Destination Souring for out-of-state sales. The breakdown of this, can be located within our Tax Sourcing guide and outlines:

  • Origin States: In an origin state, the sales tax you charge is based on your locations nexus. If you have no nexus in the state of the shipping address (i.e Illinois), then no tax is charged. If however, you do have a physical nexus in the state of the shipping address, then the location of your nexus is used to determine taxes. If you have a nexus but no physical location, then the customer’s location is used to determine taxes.
  • Destination States: In a destination state, the sales tax you charge is based on the customer’s address. If you have no nexus in the state of the shipping address, then no tax is charged. If you do have a nexus in the state of the shipping address, then the customer’s location is used to determine taxes.

To set up taxes for Illinois, you will want to ensure you have registered with the tax agencies and have your Sales Tax ID. Once this has been completed, you can begin setting up your taxes by:

  • Go to Settings > Taxes.
  • In the Tax regions section, beside United States, click Set up.
  • In the Sales tax collection section, click Collect sales tax.
  • Select a state in which you are registered.
  • In Sales tax ID, enter your sales tax ID. If you have applied for a sales tax ID but don’t yet have one, then leave this field blank. You can update it when you receive your sales tax ID.
  • Optional: If your business is located in a state where tax laws regarding shipping vary, then you can choose whether you want to charge tax on shipping.
    1. Click Advanced options.
    2. Under Shipping tax, choose whether you want to apply shipping tax.
  • Click Start collecting sales tax.
  • Optional: Add more regions and account numbers by clicking Collect sales tax.

For more information on setting up your taxes, you can check out our Setting Up US Taxes documentation. Please be sure to consult with your local tax authority or tax professional to verify taxes are charged correctly, and to ensure you file and remit your taxes correctly.

Please let me know if you have any other questions!

3

After this is setup do I have to worry about anything else or is the money automatically collected

4

I realize this is an old post, but wanted to reply because I too was confused about this before 2024 and was temporarily set up to collect sales tax for customers outside of IL at 6.25%. I wrote an email to IL Dept of Revenue in 2024 and they confirmed IL only requires you to charge sales tax to customers whose shipping address is in IL.

This is the reply I received from REV.TA-Sales@illinois.gov:

Hello,

Sales to customers in other states is considered interstate commerce and is not taxable.

You would include these sales in your total receipts, but deduct them on line 5 on the Schedule A of the ST-1.

They would need to take possession of the item in Illinois for it to be taxable.

TITLE 86: REVENUE
CHAPTER I: DEPARTMENT OF REVENUE
PART 130 RETAILERS’ OCCUPATION TAX
SECTION 130.120 NONTAXABLE TRANSACTIONS

5

So I just heard about this yesterday. I live in IL and heard we have to collect tax from every county and city people purchase from outside of IL. It’s called Retailers Occupation Tax (ROT). Are you saying we don’t have to do this? I was thinking if this is required I might have to shut down. I am not sure about how to go about that.

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I know that this is an old question, but here to attempt to help. You do not collect taxes on sales to customers that are not inside Illinois. Illinois can not collect sales tax on sales that are sent outside of Illinois unless the customer is at the store to complete the sale.

However, if you are an online retailer, Illinois assumes sales are sourced outside of Illinois and now requires destination sales tax collection on sales to Illinois customers. However, this is only if you are completing a sale with inventory that is not in Illinois. So, if you have a stock of inventory and selling online to an Illinois customer, the sales tax rate is based on where the inventory is located. If you are shipping from inventory located outside of Illinois (such as a dropshipping partner from Wisconsin), then you no longer have an Illinois based sale and the tax rate is dependent on where you are shipping to. That means you could be collecting sales tax at Chicago rates, Joliet rates, Peru rates, etc. All of this would have to be reported on the ST-2 when filing your sales tax returns.