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Illinois Individual Use-Tax Amnesty, New Reporting Option Followed Up by More Aggressive Enforcement

Thought that the income tax hike was the only tax problem you might face from Illinois in 2011? Think again. Have you made purchases online this year or in prior years? Have you bought anything while traveling abroad and not self assessed the Illinois 6.25% use tax? If yes, then it is likely that you owe Illinois use tax. Illinois use tax is a tax on the use of tangible personal property in Illinois for which sales tax was NOT collected. This means when goods are purchased in another state or country, but then consumed or “used” in Illinois, the purchaser owes tax to Illinois.  In general terms, if sales tax is not collected on the purchase of a product (from Illinois or other states), the use tax is supposed to be self assessed by the consumer. With millions of individual taxpayers, policing this rule has always been very difficult.

Illinois is now trying to reduce the difficulty it has with the collection of use tax. For 2010 there is a new line on Form IL-1040, which must be signed by the taxpayer under penalties of perjury, requiring a taxpayer disclose their use tax liability. The instructions provide a table for taxpayers without actual purchase receipts to estimate their use-tax liability based on adjusted gross income (at a rate of .06% so that a taxpayer with $250,000 of income would pay $150 of use tax). The table does not reflect substantial untaxed purchases. For taxpayers with receipts for out-of-state purchases or substantial untaxed purchases, the instructions provide a worksheet to calculate the use-tax liability. For general merchandise that had no sales tax collected on it, the state use-tax rate is 6.25%. Please note that Chicago also imposes a use-tax rate above and beyond the state use-tax rate mentioned (1%).

Individuals with an annual use-tax liability under $600 may elect to report use tax directly on their income tax return. Illinois Form IL-1040, line 22 now asks taxpayers to state the amount of “use tax due” on internet, mail order, or other out-of-state purchases from the UT Worksheet or UT Table in the instructions. Do not leave this line blank, but you may put zero as an answer. If the liability is greater than $600, taxpayers must report use tax on Form ST-44. 

It is important taxpayers understand these potential liabilities because Illinois is ramping up its use-tax collection efforts. The Illinois Department of Revenue (IDOR) is working to better identify people who bought goods online but did not remit sales tax. Furthermore, IDOR continues to obtain customs records in order to send notices, including interest and penalty assessments, to people who purchased items abroad. If you are an Illinois resident who declared your imports and filed the Customs Declaration form for those purchases, you WILL receive a use-tax bill from Illinois if you don’t file. 

So, do you need to report some use tax? Illinois is providing ways to help taxpayers avoid interest and penalties.

The State of Illinois enacted the individual use-tax amnesty program for the period January 1, 2011 through October 15, 2011. The program allows individuals to look back to the taxable years ending after June 15, 2004 and before January 1, 2011 to file unreported use tax and not be held liable for any interest or penalties. Amnesty will not be given to those who are under a use-tax audit or who have been contacted by the state regarding use tax. Furthermore, amnesty will not be given to individuals who are a party to a pending criminal investigation or civil litigation. 

With the growth of the internet, the state is attempting to level the playing field for brick-and-mortar vendors competing with Internet sellers. And with the poor shape of the Illinois budget, use tax is taking on added importance. While individual taxpayers have always been responsible for reporting use tax, adding a line to the Illinois Form IL-1040 stresses the importance of proper reporting. 

For more information on the amnesty program, help when dealing with the changes on the Illinois income or use tax return or assistance with Chicago use tax, please contact Jason Parish at jparish@BlackmanKallick.com or 312-980-2959, or your Blackman Kallick representative. Our thanks to Deb Rood for her contribution to this article. 

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.