“Should you or shouldn’t you” charge sales tax on shipping charges in Illinois has been a recurring question here at TaxJar for a long time. In fact, we wrote a whole long blog post about Illinois shipping taxability back in 2014 and, even with intensive research, was unable to for a definitive conclusion.
Today, I’m happy to say that we finally have an answer. Illinois has amended their convoluted shipping taxability rules to conform with the Illinois State Supreme Court’s ruling in Kean v. Wal-Mart. That is to say, they have finally agreed that sellers should charge sales tax on shipping charges in Illinois.
What has changed in Illinois?
It was always our understanding that online sellers who sell on platforms like Amazon or through shopping carts should collect sales tax on shipping charges made to buyers in Illinois. This was because Illinois’ complex regulation included lots of language about how shipping is taxable unless it can be separated out from the rest of the sale such as by allowing the buyer to come and pick up the item in person. From there, there was a lot of confusion about whether just the option of allowing the buyer to pick the item up precluded sales tax, even in cases where the buyer picking up the option was infeasible. (Such as when the buyer lived across the U.S. or in another country. You can read more than you probably ever wanted to know about this in our Illinois Shipping: Taxable or Not? blog post.)
The problem was that some of the Illinois DOR’s language and the language of the Illinois Supreme Court in the Kean v. Wal-Mart case were in disagreement.
These new amendments, which went into affect April 1, 2016, clarify all of that. Now, for the most part, shipping is taxable as stated in the Kean case, and that applies retroactively all the way back to November 19, 2009 when the Kean decision was handed down. (Don’t worry! If you were operating in good faith under the other interpretation of the law, there is a Safe Harbor rule so you won’t be penalized.)
So is Shipping Taxable in Illinois or What?
Here’s what the state of Illinois has to say about eCommerce and shipping now:
Like many other states, Illinois now considers an online sale to include the shipping charge as part of the purchase. So if you charge your buyers a shipping charge, you should also charge them sales tax on that shipping charge.
To confuse matters a bit more, there is language about out-of-state pick up options here. That said, if you don’t normally have a place where you allow customers to pick up items then this probably doesn’t apply to you.
Interestingly, if you offer unqualified free shipping on all orders and the customer elects to pay a shipping charge just to get the item faster, then shipping charges charged to Illinois customers are not taxable.
You can read about Illinois’ new shipping taxability guidelines, including many examples that are sure to cover your specific case, here.
What if you sell a mix of taxable and non-taxable items?
Say you sell a taxable coffee cup and a nontaxable building material to a customer and send them along in the same shipment. (Hey, it’s not likely but it could happen!) Illinois allows you to itemize shipping on the invoice and only charge your customer sales tax for the amount of shipping charged on the taxable coffee cup.
But if a lump sum shipping fee is charged, “the lump sum delivery charge will not be taxable if the selling price of the items for which delivery is nontaxable is greater than the selling price of the items for which delivery is taxable.” In other words, if your building material was more expensive than your coffee cup then you don’t need to charge sales tax on the shipping lump sum. But if the gold plated coffee cup was more expensive, then you would need to charge sales tax on the shipping charge.
I hope this helps you determine whether or not to charge sales tax on shipping in Illinois. We only scratched the surface on the amendments, so if you have specific questions, I recommend consulting the Illinois DOR’s handy shipping taxability guide. Have questions or comments? Talk to us over at our Sales Tax for eCommerce Sellers Facebook group!