Understanding Illinois’ 2025 Retailers’ Occupation Tax changes

Effective January 1, 2025, Illinois implemented a significant change regarding the collection and remittance of Retailers’ Occupation Tax (ROT). This change impacts Illinois retailers that maintain a place of business in Illinois and sell goods from a location outside of Illinois.

Here is an overview of the destination-based Retailers’ Occupation Tax (ROT) and the potential impacts to your business:

What is the destination-based Retailers’ Occupation Tax?

The destination-based ROT represents a shift from the previous retailer’s use tax system to a more uniform approach to tax collection. Under this new system, the total state and local ROT rate is calculated based on the effective rate at the Illinois location where the purchaser takes possession of the goods sold.

Impact on retailers

Retailers with a place of business in Illinois were previously obligated to collect and remit Illinois use tax on retail sales to Illinois customers for which selling activities occurred outside of Illinois. However, these sales are now subject to the destination-based ROT.

For example, under the new law, if a retailer maintains a place of business in Illinois and makes retail sales to Illinois customers from a location outside of Illinois, they will now be obligated to collect taxes at the destination rate. But if that same retailer makes a sale where selling activities occur in Illinois, they will collect tax using the origin rate.

Registration requirements

Retailers must take note of the following registration requirements:

• Out-of-state retailers: The Illinois Department of Revenue will change your registration status from UT to ROT if applicable.
• Illinois retailers: If you are already registered to remit ROT, your registration status will remain unchanged. However, you must register new tax sites for any sales sourced outside of Illinois.

Actions required by retailers

Implementing destination-based ROT sourcing will have significant implications for businesses making sales to Illinois customers.

Affected retailers must take several actions to comply with the new destination-based ROT requirements:

1. Determine the correct taxing location: Collect and remit based on the taxing location to which the tangible personal property is shipped or delivered or where possession is taken by the purchaser.
2. Update tax calculation software: Ensure that your tax calculation software or ERP system is updated to incorporate the changes for accurate tax collection in appropriate local jurisdictions.
3. Register new tax sites: Register any new tax sites on the MyTaxIllinois portal using the “Maintain Locations” link prior to filing a return.
4. Report destination-based sales: Continue to report sales on Form ST-1, Sales and Use Tax and E911 Surcharge Return, and complete Form ST-2, Multiple Site Form, to report destination-based sales.

How Wipfli can help

Wipfli’s experienced state and local tax team can support your business in navigating your ROT implementation. Our team focuses on partnering with you to reach your goals, from understanding the latest requirements to avoiding overpayments of tax.

We’re ready to help you navigate complex statutes and stay up to date with your compliance. Reach out to learn more.