Illinois Sales Tax Update at a Glance
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The Illinois Department of Revenue released updated guidance (PIO-125, March 2026) explaining how businesses determine sales tax nexus and source transactions.
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Sellers may establish nexus through physical presence or economic nexus thresholds.
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Remote sellers must collect Illinois tax if they exceed $100,000 in sales or 200 transactions in a 12-month period.
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Marketplace facilitators generally collect and remit tax for marketplace sales, though sellers must still review their own obligations.
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Illinois generally applies destination-based sourcing, meaning tax is calculated based on the customer’s delivery location.
The Illinois Department of Revenue recently released updated guidance explaining how businesses should determine whether they have sales tax nexus in Illinois and how they must source sales once nexus is established. The guidance applies to a wide range of sellers, including retailers, service providers, and marketplace facilitators, and clarifies how both physical presence and economic nexus standards apply.
The updated publication (PIO-125, March 2026) is particularly relevant for businesses selling goods or services into Illinois through online platforms, direct internet sales, or marketplace channels.
Determining Sales Tax Nexus in Illinois
Businesses must collect and remit Illinois sales and use tax if they establish nexus with the state. The guidance reiterates two primary ways sellers may create nexus:
Physical Presence Nexus
A seller may establish nexus if it maintains a physical presence in Illinois, which can include:
- Offices or places of business
- Employees, agents, or representatives operating in the state
- Inventory stored in Illinois (including inventory stored in fulfillment centers)
- Temporary business activities such as trade show participation
Even limited physical activities can trigger tax obligations depending on the circumstances.
Economic Nexus
Illinois also applies an economic nexus standard for remote sellers. Businesses must collect Illinois tax if, in the preceding 12-month period, they have:
- $100,000 or more in gross sales in Illinois, or
- 200 or more separate transactions with Illinois customers
These thresholds apply even if the seller has no physical presence in the state.
Marketplace Facilitators and Seller Responsibilities
The guidance also addresses the role of marketplace facilitators (businesses that operate platforms allowing third-party sellers to make retail sales).
Marketplace facilitators are generally responsible for collecting and remitting tax on behalf of marketplace sellers for transactions facilitated through their platform. However, sellers should still evaluate their own nexus and reporting obligations when they also make direct sales outside the marketplace.
Sourcing Rules for Illinois Sales
Once nexus exists, sellers must determine how to source transactions for Illinois tax purposes.
Illinois uses destination-based sourcing for many remote transactions. This means tax is generally calculated based on the customer’s location where the product is delivered or received.
For businesses selling through the internet or marketplace platforms, proper sourcing becomes particularly important because:
- Local tax rates may vary by jurisdiction
- The correct tax rate must be applied based on the delivery destination
Failure to apply the proper sourcing rules can lead to under-collection or over-collection of tax, both of which may create compliance issues.
What the New Illinois Guidance Means for Sales Tax Compliance
Illinois continues to refine its approach to remote commerce and marketplace activity. The latest guidance provides clarity around:
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When sellers create nexus
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Which party must collect tax
- How to properly source sales for Illinois transactions
For businesses selling into Illinois, especially those operating through e-commerce channels or multiple marketplaces, reviewing these rules is essential to ensure proper compliance.
Steps Businesses Should Take to Maintain Compliance
Companies selling into Illinois should consider the following actions to help ensure they remain compliant with the state’s sales and use tax requirements:
- Review sales activity regularly to determine whether Illinois economic nexus thresholds have been met.
- Assess business operations to identify whether inventory, employees, representatives, or other activities create physical presence nexus in the state.
- Clarify marketplace responsibilities by confirming whether the marketplace facilitator or the seller is responsible for collecting and remitting tax on each transaction.
- Verify tax calculation systems to ensure the correct destination-based Illinois tax rates are applied to applicable transactions.
Because Illinois sourcing and nexus rules can be complex, conducting periodic nexus and compliance reviews can help businesses identify potential exposure early and address issues before they lead to assessments or penalties.
Need Help Evaluating Your Illinois Sales Tax Exposure?
If your company sells products or services in Illinois, whether through direct sales, e-commerce, or marketplace platforms, it may be time to reassess your nexus status and sales tax collection obligations.
Thompson Tax can help you evaluate nexus, review Illinois sourcing requirements, and identify potential compliance risks before they become costly issues. Our team works with businesses to ensure they are properly collecting, reporting, and remitting sales and use tax while minimizing exposure.
Contact us today to schedule a sales tax nexus review. We are your Trusted Tax Advisors, helping businesses navigate complex state and local tax requirements with confidence.