In 1955, Illinois passed the Use tax Act. A use tax (more commonly referred to as a sales tax) is imposed on the privilege of using, in this state, any kind of general merchandise, food, drugs, or medical appliances that are purchased anywhere at retail from a retailer.
Generally, use tax is paid to a retailer registered to collect the tax. When we purchase items at our local retailer, the tax is collected as a sales tax. In Illinois if use tax is not paid to the retailer (as in the case of mail-order or Internet purchasers from out-of-state), the purchaser must self-assess use tax at the rate of 6.25 percent on general merchandise and 1 percent on qualifying food, drugs, and medical appliances and remit it to the Illinois Department of Revenue.
Under the act taxpayers are required to file a form ST 44 and pay the tax. Most taxpayers were not aware of the requirement. So starting in 2010, a line was added to the State Income Tax Return (IL 1040) under âOther Taxesâ as use tax so you can pay it with your income tax by April 15 of the following year. If you donât pay the tax and are later audited by the state, you are subject to interest and penalties in addition to the use tax.
Illinois, like many other states that are suffering budget deficits, is becoming more aggressive in collecting sales and use taxes. The states are putting increased pressure on Internet-based retailers to assess and collect the sales/use tax at the time we make the purchase over the Internet. Amazon is one of the major sellers online and they have been fighting with the states to avoid the collection of sales taxes on sales to buyers in states where they do not have a place of business in the state.
In 1992, the Supreme Court ruled that such sales did not require the collection of sales taxes on sales to âout-of-staters.â There is a lot of buzz in Washington right now to change the 1992 ruling and allow states to have retailers collect the tax. I doubt that we will see anything until after the elections this year, because no politician wants to be associated with increasing taxes.
In Illinois, just because the retailer doesnât âcollectâ the tax doesnât exempt the taxpayer from owing it to the state. The burden is placed on us, the taxpayer, to keep track of what sales taxes we havenât paid and include it on our income tax return. Most of us donât keep track of such details, so the state has a âtableâ that you can use to estimate the use tax based on a percentage of your adjusted gross income. A word of caution: as more retailers begin to collect the sales tax on mail order and Internet sales transactions, the less you will need to claim as a use tax on your return. You donât want to wind up paying it twice â once as sales tax and again as âestimatedâ use tax.
Whatâs the good news? Internet retailers are still holding off collecting the sales tax on Internet-based sales. There is still some time to take advantage of this perhaps for another year. Even though you pay a 6.25 percent use tax for mail order/Internet purchases, you avoid paying the county and city taxes that are added to your purchases at local retailers (the total sales taxes in Cook County are 10.5 percent, in McHenry County 8 percent and in Kane County 7 percent). Also, you donât pay the tax at time of purchase, you have until the following April 15 to pay it with your income tax return.
Keep those letters coming folks. Send in your questions and ideas to: The Frugal Forum, P.O. Box 693, Huntley, IL 60142, or, by email to: thefrugalforum@gmail.com.
