Operating a small business involves understanding how different taxes apply to you based on the products or services you sell. If you charge your customers sales tax, your income is not affected by passing the amount to the state. The gross receipts tax, on the other hand, is based on your total revenue and directly impacts the profits you earn.
The Illinois Department of Revenue’s administrative rules now incorporate the Illinois Supreme Court’s holding in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009). The revised rules clarify when transportation and delivery charges are considered “gross receipts” subject to Retailers’ Occupation Tax or Use Tax.
The amended rules also clarify: Persons who have computed their tax liability for transportation and delivery charges according to the provisions of either the old rule or the amended rule for periods between the Kean decision (November 19, 2009) and April 1, 2016 (the effective date of the new rules) shall be considered to have properly collected and remitted tax on those charges.
Frequently Asked Questions
Are delivery and transportation charges subject to Illinois sales tax?
Transportation and delivery charges may be subject to Illinois Retailers’ Occupation Tax or Use Tax if they are considered part of the gross receipts. Whether they are taxable depends on how the charges are invoiced and whether they are optional for the buyer.
What is the difference between sales tax and gross receipts tax?
Sales tax is collected from the customer and passed on to the state, having no impact on a business’s income. Gross receipts tax, however, is based on the total revenue generated by the business and directly affects profitability.
How did the Kean v. Wal-Mart Stores, Inc. decision impact tax rules?
The Illinois Supreme Court’s 2009 decision in Kean v. Wal-Mart clarified that delivery charges can be taxable under certain conditions. This ruling prompted the Illinois Department of Revenue to revise its administrative rules to reflect the court’s interpretation.
Are businesses liable for taxes on past delivery charges under the old rules?
Businesses that followed either the old or amended rules for delivery charges from November 19, 2009, to April 1, 2016, are considered to have complied properly with tax collection and remittance requirements during that period.
Do delivery charges always count as part of gross receipts?
Not necessarily. Delivery charges are only included in gross receipts if they are inseparable from the sale and not optional. If the buyer can opt out or arrange their own delivery, the charges may be exempt from tax.
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