Marketplace facilitator laws now in effect for Illinois, Iowa, Wisconsin

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Thirty-eight states have adopted marketplace facilitator laws which affect marketplaces that contract with third-party sellers to promote the sale of their goods and/or services. The marketplace facilitator legislation shifts the obligation of sales tax collection and remittance from the third party seller to the marketplace facilitator. These laws take effect for Illinois, Iowa and Wisconsin as of Jan. 1, 2020.

Illinois

New Marketplace Facilitator Law

Illinois has enacted a new marketplace facilitator law that requires marketplace facilitator to collect Illinois sales tax when those facilitators have $100,000 or more in sales or at least 200 transactions in the state.

A couple of examples where a marketplace facilitator law would be triggered:

  1. Our client sells goods via amazon.com. If amazon processes the order through the site and ships the product to a customer in a state that has a marketplace facilitator law, amazon is required to collect and remit tax on the sale.
  2. Our client uses a software service provider to service their clients in a state that has a marketplace facilitator law. The service provider must collect tax on the sale if the service is taxable and in a marketplace facilitator state.

In addition to the marketplace facilitator law, Illinois released other updates:

Tax on Recreational Marijuana

Public Act 101-0027, signed into law in June, creates a legal market for recreational marijuana and imposes various excise taxes. These taxes include a 7% tax on wholesale sales made to dispensaries, as well as retail excise taxes of 10%, 20% or 25% depending on tetrahydrocannabinol (THC) content or product type. A local option tax of up to 3% will not take effect until July 2020.

Excise Tax on Parking Services

The new excise tax on parking services will be paid by drivers for the privilege of parking in a designated space, garage or other area. The tax will be imposed at a rate of 6% of the purchase price for hourly, daily or weekly parking spaces and 9% of the purchase price of parking on a monthly or annual basis.

Phaseout of Franchise Tax

Illinois’ franchise tax, which has historically been imposed on C-corporations doing business in Illinois, will be phased out between 2020 and 2023. In 2020, the first $30 in franchise tax liability will be exempted, and by 2024 no tax will be owed.

Ballot Measure to Move to Graduated Individual Income Tax and to Raise Corporate Income Tax (Subject to Ratification)

If passed, Illinois will move from a flat 4.95% individual income tax to graduated rate bracket schedule.  Additionally, upon passage, the corporate income tax rate will increase to 7.99% in 2021.

Trade-In Credit for First Division Motor Vehicles Capped at $10,000

Illinois law has historically excluded the value of tangible personal property from the sales tax base when it is traded in as part of a sale of property of a like kind or character. Beginning Jan. 1, 2020, the trade-in credit for first division motor vehicles designed to carry no more than 10 persons is limited to a maximum of $10,000. The value of such a traded-in vehicle above $10,000 will be included in the sales price of the purchased vehicle and will thus become subject to tax.

Iowa

Conformity to IRC Section 179

As of Jan. 1, Iowa will fully conform to federal expensing provisions under IRC Section 179, while conforming to the federal repeal of the deferral of gain or loss for the like-kind exchange of property. [17] Iowa will also begin conforming to the IRC on a rolling basis.

Wisconsin

New Marketplace Facilitator Law

2019 Wisconsin Act 10, enacted in July 2019, took effect on Jan. 1. This new law requires marketplace facilitators to collect sales taxes on behalf of marketplace sellers when the marketplace facilitators meet the state’s economic nexus threshold of over $100,000 in sales or 200 transactions into Wisconsin.

For more information, visit https://taxfoundation.org/2020-state-tax-changes-january-1/. For questions or assistance regarding your obligations under the marketplace facilitator laws, contact your account manager.