Sales & Use Tax Update: Illinois and Maine

Illinois

Starting in 2025, Illinois will implement new sales tax requirements for out-of-state retailers with a physical presence in the state. Under SB 3362, these retailers will be required to collect state and local taxes at destination-based rates when shipping goods from out-of-state locations. This change aims to standardize sales tax sourcing for all out-of-state sellers, aligning their obligations with the existing tax requirements for remote sellers.

Here are the three categories of sales tax seller obligations under Illinois law:

1. In-state Sellers (Illinois Retailers):

   Retailers based in Illinois must collect state and local Retailers’ Occupation Tax at the rate effective at the seller’s location, regardless of the buyer’s address. This is done under the origin sourcing rule, where taxes are calculated based on the seller’s physical location.

   
   

2. Out-of-state Sellers:

   • Physical Presence in Illinois: If the seller has physical presence or inventory in Illinois, they are treated like in-state sellers and must collect taxes based on the location of the ship-from address.

   • Shipping from Outside Illinois: If the seller ships from inventory outside Illinois, they are subject to the state use tax but are not required to collect additional local taxes.

   • Marketplace Facilitators: Inventory used solely for orders processed through registered marketplace facilitators does not establish a physical presence in Illinois. In this case, the marketplace facilitator is responsible for tax collection.

     
     

3. Remote Sellers:

   These sellers, who do not have a physical presence in Illinois, must follow destination sourcing. They are required to collect sales taxes based on the delivery address of the buyer, in line with destination-based tax obligations.

   
   

This new legislation streamlines the tax collection process for out-of-state sellers, ensuring consistency and compliance with Illinois’ sales tax regulations.

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Maine

Starting January 1, 2025, Maine will join the majority of states by imposing sales and use tax on the lease and rental of tangible personal property. This change represents a significant shift from the current practice, where Maine taxes lessors on their purchase of tangible personal property for lease or rental but generally does not tax lease or rental payments.

Key provisions of the new law include:

1. Definition of Lease or Rental:

   The term “lease or rental” is defined as any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration. This includes future options to purchase, extend the lease, subleases, and subrentals.

   
   

2. Exclusions:

   The definition excludes equipment rented with an operator, where the operator is necessary for the property to function as designed and who does more than maintain, inspect, or set up the property.

   
   

3. Exemption for Lessors:

   Lessors can still qualify for the sale for resale exemption. This means that sales, leases, or rentals of tangible personal property to a lessor with a Maine resale certificate are exempt from sales tax if the property is purchased for lease or rental.

   
   

4. New Sourcing Rules:

   For leased property, new sourcing rules apply. Generally, non-periodic rental payments or the first of recurring periodic lease payments will be sourced in the same manner as a sale of tangible personal property. This means the location where the property is delivered or made available for use will determine the taxability.

   
   

These changes in Maine's sales tax regulations will impact both lessors and lessees, and businesses involved in leasing or renting tangible personal property should be prepared for these changes in 2025.