By: Mansoor Ansari, Chicago Tax Attorney
Sales Tax Obligations for Chicago Businesses
As a business owner in Chicago, Illinois, you are obligated to report the sales tax you collect, just like any other retail business. Over the last two years, the Attorney General has been aggressively targeting cases involving unremitted sales tax. In the past year alone, there has been a notable shift from imposing civil penalties to filing criminal tax fraud charges. Upon conviction, these charges can lead to jail time.
If you have been charged or are under scrutiny by the Illinois Department of Revenue for sales tax fraud, call our office to discuss your case. You may be facing civil penalties or criminal prosecution—these are two separate legal matters that require distinct courtrooms and procedures.
The Illinois Attorney General established the crime of Sales Tax Evasion and imposed graduated penalties based on the amount of sales tax evaded.
Penalties for Sales Tax Evasion
Breakdown of Crimes and Punishments:
Amounts less than $500: Class 4 felony, punishable by 1 to 3 years in prison
Amounts less than $100,000: Class 2 felony, punishable by 3 to 7 years in prison
Amounts more than $100,000: Class 1 felony, punishable by 6 to 30 years in prison
Example of Prosecution: Sultan Gilani Case
In August 2012, under the new law, Sultan Gilani, 61, of Chicago, was formally charged in Cook County Circuit Court with:
Four counts of sales tax fraud
Four counts of mail fraud
Each count was a Class 3 felony punishable by 2 to 5 years in the Illinois Department of Corrections.
The allegations: From 2009 to 2011, the defendant defrauded the State of Illinois of over $324,000 in sales taxes on gasoline sales at his gas station, Synergy Oil Corporation, 13830 S. Pulaski Rd., Crestwood.
In August 2010, the Attorney General and Department of Revenue initiated criminal enforcement to recover millions in lost sales tax revenue after uncovering widespread underreporting by hundreds of Illinois gas stations.
Possible Violations and Penalties
IFTA Civil Violations
Failure to display your IFTA license:
First Offense: Traffic citation + $1,000 penalty (minimum)
Second or Subsequent Offense: Traffic citation + $2,000 penalty (minimum)
Failure to display IFTA decals:
First Offense: Traffic citation + $1,000 penalty (minimum)
Second or Subsequent Offense: Traffic citation + $2,000 penalty (minimum)
Operating without a single-trip permit:
First Offense: Traffic citation + $1,000 penalty (minimum)
Second or Subsequent Offense: Traffic citation + $2,000 penalty (minimum)
Operating with a revoked IFTA license.
IFTA Criminal Offenses
Operating without a valid motor fuel use tax license
Failure to file a quarterly motor fuel use tax return
Failure to make payment of motor fuel use taxes due
Filing a false quarterly motor fuel use tax return
Filing a false motor fuel use tax application or decal order form
Failure to keep books and records
Refusing to submit books and records for inspection upon demand
Dyed Diesel Violations
An Illinois Department of Revenue agent may inspect fuel tanks for the presence of dye. Refusing inspection results in a $1,000 penalty per refusal. Licenses or permits under the Motor Fuel Tax Law may be revoked for such refusals.
Specific Dyed Diesel Violations:
Knowingly selling or attempting to sell dyed diesel fuel for highway use:
First Offense: $2,500 fine, Class A misdemeanor
Second or Subsequent Offense: $5,000 fine, Class 4 felony
Knowingly selling, storing, or transporting dyed diesel fuel without required notices:
First Offense: $500 fine
Second or Subsequent Offense: $1,000 fine
Having dyed diesel in tanks attached to a licensed motor vehicle:
First Offense: $1,000 fine, Class A misdemeanor
Second or Subsequent Offense: $5,000 fine, Class 4 felony
Knowingly selling or attempting to sell dyed diesel fuel for use in recreational watercraft:
First Offense: $1,000 fine, Class 4 felony
Second or Subsequent Offense: $5,000 fine, Class 2 felony
Knowingly possessing dyed diesel for use in recreational watercraft:
First Offense: $1,000 fine, Class A misdemeanor
Second or Subsequent Offense: $5,000 fine, Class 2 felony
Contact Our Attorney
Contact our law firm at (888) 577-1482 to discuss your case with Mansoor Ansari, J.D., LL.M. (TAX)
Frequently Asked Questions
What is considered sales tax fraud in Illinois?
Sales tax fraud in Illinois involves intentionally failing to remit collected sales tax to the Illinois Department of Revenue. This can include underreporting sales, falsifying tax returns, or failing to file at all. Such actions can lead to both civil and criminal charges, with escalating penalties based on the amount of tax evaded.
What penalties can a Chicago business face for sales tax evasion?
Penalties vary depending on the amount evaded. For amounts under $500, the offense is a Class 4 felony with up to 3 years in prison. For amounts under $100,000, it’s a Class 2 felony with up to 7 years. If over $100,000, the charge becomes a Class 1 felony, carrying up to 30 years in prison.
What is the IFTA and how can a business violate it?
The International Fuel Tax Agreement (IFTA) regulates motor fuel use by carriers operating in multiple jurisdictions. Violations include failure to display decals, operate under a valid license, file returns, or keep required records. Penalties range from citations and fines to criminal charges and license revocation.
What are dyed diesel violations and why are they serious?
Dyed diesel fuel is for off-road use only and is taxed differently. Using or selling it for highway or recreational watercraft use is illegal. Penalties include fines from $500 to $5,000 and can result in misdemeanor or felony charges, depending on the number and nature of offenses.
Can a business owner really go to jail for sales tax issues?
Yes. Illinois has increasingly pursued criminal prosecutions for serious sales tax evasion. Convictions can result in significant prison time, especially for high-dollar cases or repeat offenses. Seeking legal counsel early is critical to managing both civil and criminal exposure.
