It’s fair to say that sales tax in the US can get pretty complicated. One of the central points of the ongoing debate concerning online retailers like Amazon and sales tax is the burden placed upon a retailer when they’re required to keep track of the hundreds, if not thousands of different sales tax jurisdictions in the United States. Each state has its own sales sales tax, of course, and various jurisdictions within those states tack on their own taxes. From a consumer’s perspective, that complexity can sometimes be useful. You can, for example, purchase something in an area with a lower sales tax rate than where you live.
Most people probably aren’t willing to drive across state lines just to knock a few percentage points off the sales tax on something minor, but for a more major purchase, say a vehicle, the extra effort might make more sense.
Taxpayers should be careful, however, because there’s more at play here than just sales tax. Use tax must also be taken into consideration. Use tax, generally, fills the gaps left by sales tax. The rule in Illinois is this. On products you purchase and use in Illinois and for which you paid sales tax less than Illinois’s rate of 6.25% (1% on qualifying food and drugs), you owe the difference to Illinois in use tax. Whether it’s a half a percentage point or whether you bought something online or in a state with no sales tax and thus paid no sales tax on the purchase at all, if you’re an Illinois resident and use the item in the state, use tax is owed.
For big ticket items like airplanes, boats, automobiles, trucks, motorcycles, recreational vehicles, and so on, the cost of sales tax on the transaction can of course be quite the figure. This can provide motivation for the buyer to try to make the purchase in a lower sale tax jurisdiction, but for the same reason, the Illinois Department of Revenue has reason to check the paper trail.
When the state runs into budget issues, you can count on the Department to go after revenue with increased intensity. In our practice we have seen numerous IDOR investigations into vehicles on grounds of unpaid sales or use tax. For the last several years the Illinois annual income tax return has included a line item regarding use tax which cannot be left blank on the filed return. This means taxpayers might not only have unpaid tax liabilities, but could open themselves to charges of filing false tax returns or perjury, potentially criminal offenses.
Horowitz Law Offices represents taxpayers before the Illinois Department of Revenue in connection with sales and use tax audits, audits connected to airplanes, watercraft and motor vehicles, and other tax matters. You are welcome to contact us at (312) 787-5533 or firstname.lastname@example.org.