- Illinois introduced two separate amnesty programs that address sales tax liabilities.
- Effective immediately, a 15% gross-receipts penalty tax applies to remote retailers who are unable to substantiate local sourcing.
- The economic nexus threshold has been adjusted to remove the 200-transaction threshold requirement.
Background
On June 16, 2025, Governor J.B. Pritzker signed Illinois’ fiscal year 2026 budget bill (House Bill 2755) into law enacting significant sales tax changes including two amnesty programs, changes to sourcing for the service occupation and use tax, removal of the 200-transaction requirement from the economic nexus threshold, and a new 15% gross-receipts penalty on sellers who fail to retain documentation relating to sourcing.
Overview of Amnesty Programs:
- Tax Delinquency Amnesty Program (“General Amnesty”)
- Eligible Tax Types: All state taxes collected by Illinois Department of Revenue
- Amnesty Period: July 1, 2018 – June 30, 2024
- Amnesty Window: October 1, 2025 – November 17, 2025
- Excluded Tax Types: Taxes not administered by Illinois Department of Revenue including taxes paid directly to localities, property taxes, estate/inheritance taxes, insurance premium taxes, franchise taxes and license fees.
- Eligible for waiver of interest and penalties.
- Remote Retailer Amnesty Program (“Remote Retailer Amnesty”)
- Eligible Tax Types: Sales taxes owed by a remote retailer
- Amnesty Period: January 1, 2021 – June 30, 2026
- Amnesty Window: August 1, 2026 – October 31, 2026
- Eligible for waiver of interest and penalties.
If an audit was recently completed or will be completed prior to the close of general amnesty on November 17, 2025, you must pay the full amount of the audit tax liability during the amnesty window to qualify. Furthermore, cases pending with the Board of Appeals may qualify. All outstanding or amended returns must be filed and payment in full must be submitted by the end of the amnesty window to remain eligible.
Forvis Mazars Insight: Out-of-state retailers who qualify for the remote retailer amnesty program should consider and quantify advantages as compared to general amnesty. For cash flow purposes, the remote retailer amnesty program delays payment by nearly one year. Furthermore, the remote retailer program utilizes a simplified rate (9% or 1.75% for qualifying food) rather than calculating local taxes that would be due under destination-based sourcing. Taxpayers should also consider whether a voluntary disclosure agreement may offer more benefits with its limited lookback period as compared to the amnesty periods. However, unlike the aforementioned amnesty programs, interest is generally not waived under a voluntary disclosure agreement. If no action is taken for liabilities that exist during these periods, it is unlikely that the Department of Revenue would offer any interest or penalty relief on taxes discovered after the conclusion of these amnesty programs.
Sales Tax Documentation Penalty, Servicemen Sourcing Changes, and Economic Nexus Threshold
Effective June 16, 2025, the Illinois Department of Revenue will now impose a new 15% gross-receipts penalty tax on taxpayers that fail to provide information, schedule, or documents for sourcing to the location where property was shipped or where the purchaser took possession. This penalty tax would be in lieu of any other penalties that the Department of Revenue would have imposed.
Effective January 1, 2026, Illinois will remove the 200-transactional requirement from their economic nexus provision. After that date, economic nexus will be measured on gross sales made during a rolling 12-month period.
Additionally, effective January 1, 2026, a serviceman with nexus in Illinois will be responsible for state and local service occupation/use tax when performing services outside state for customers located within Illinois. Historically, the serviceman was only responsible for collecting the state rate of 6.25%. These adjustments are now aligned with obligations for remote retailers.
Forvis Mazars Insight: The Department will attempt to enforce this 15% gross-receipts penalty tax within its audits. As such, it will be crucial for remote retailers to retain sufficient documentation to substantiate the local-based destination taxes to avoid the imposition of a 15% gross receipts penalty. Remote retailers should ensure they have the appropriate controls and processes in place when making sales into Illinois to avoid this harsh penalty.
How Forvis Mazars Can Help
Forvis Mazars can help answer any questions relating to the implications of House Bill 2755 on your business.