So you live in Illinois and want to buy an Apple iPod Nano music player online. You can shop by price, but maybe you should shop by sales tax, too.
On the same iPod Nano, you could pay sales tax amounting to 0 percent, 6.25 percent, 6.5 percent or even 9.25 percent. Amazon.com, BestBuy.com, Target.com and local electronics dealer Abt.com all charge different tax rates for the same iPod mailed to the same residential address.
Which sales tax rate is correct? Believe it or not, in Illinois they all are.
“It may be the least-exciting part of making a new purchase, but savvy Illinois online shoppers can pocket significant savings by keeping an extra eye on our complicated sales tax rates,” said Brad Wilson, deal expert and founder of Chicago-based BradsDeals.com. “They vary wildly, and the difference between paying 0 percent or almost 10 percent on a $1,000 TV or laptop is big money.”
The discrepancy is yet another angle to recent wrangling about sales taxes in Illinois. One dispute involves companies that route transactions through offices in outlying towns to take advantage of tax rates that are lower than in the Chicago area.
Complex rules also can create confusion for consumers about which retailers should collect Illinois sales tax during an online transaction, and how much they should charge.
In fact, there’s really no way for consumers to know whether they’re being charged the correct amount. Even the Illinois Department of Revenue said last week it could not comment specifically on the different tax rates listed by various retailers of the iPod.
“Rates are determined by a lot of different factors, and we would have to look at how they handled the transactions,” said revenue department spokeswoman Susan Hofer.
The first key to understanding sales taxes for online purchases made in Illinois is knowing whether the retailer has physical stores or another presence in Illinois. If it does, the online retailer must collect sales tax on behalf of the state.
If the online retailer has no operations in Illinois, it does not have to collect sales tax during a transaction. That’s why Amazon.com doesn’t charge any sales tax.
For Web purchases through out-of-state retailers, the onus is on the shopper to pay that sales tax later. Illinois consumers are supposed to report their Internet purchases on their state income tax forms and pay state sales tax on those purchases.
As a practical matter, it appears that few consumers do that. Only 4.6 percent of individual Illinois taxpayers claimed any Internet purchases in 2010, according to the state Department of Revenue.
Assuming the retailer has stores in Illinois, its online arm is supposed to collect sales tax during the checkout process. But how much? Unlike most states, Illinois has many different sales tax rates.
Also unlike many states, Illinois does not base sales tax on the destination for the ordered product — the location of your home, for example. Instead, the determining factor is where, behind the scenes, your online order was actually processed.
If your Web purchase was processed in Illinois, the sales tax rate is whatever the rate is for the municipality where the processing center is located. A processing center might sometimes be a warehouse located within Illinois or even a bricks-and-mortar store that is fulfilling the order, Hofer said.
“That’s why you’re seeing different rates,” she said. “We don’t know, without knowing exactly how an individual transaction is handled, whether the rate is correct or not.”
That’s why an Illinois resident ordering an iPod Nano from the family business Abt Electronics would incur a 9.25 percent sales tax. That’s the rate in Glenview, Ill., where Abt processes orders.
An agreement from 2000 between Abt and Glenview details a revenue-sharing deal. In it, Glenview rebates a portion of the sales tax generated by Abt to the appliance retailer. That pact was struck when Abt agreed to relocate to Glenview from Morton Grove, Ill. Such incentive packages are fairly common tools used by municipalities to attract business.
A message left for comment at Abt was not returned.
Most online orders are processed by facilities out of state. In that case, the Illinois sales tax rate is 6.25 percent.
But not always. A few test orders for an iPod Nano at Walmart.com showed that the online arm of the mega-retailer calculated the sales tax based on the destination of the package. That’s the correct procedure in most states, but not in Illinois. Wal-Mart, for example, calculated a 9.75 percent tax rate for an online order to be shipped to Chicago, which reflects the city’s rate. For the same iPod shipped to Long Grove in Lake County, Wal-Mart calculated 8 percent sales tax, a sale tax rate charged there.
Walmart.com representatives said last week they could not immediately provide a comment.
Another quirk in the Illinois tax code concerns tax on shipping. Delivery charges are not taxable, as long as they reflect that actual cost of shipping. But if a retailer charges extra for shipping — more than the actual delivery cost — you pay tax on that overage. Granted, for most purchases it amounts to only a small amount, maybe even pennies.
That particular quirk is dicey for retailers, who sometimes don’t know the exact shipping charge until after the transaction is complete, said David F. Vite, president of the Illinois Retail Merchants Association. That makes charging additional sales tax on shipping more of an art than a science, he said. Most retailers charge customers a flat fee for delivery or a fee based on the sale price.
Another factor is whether shipping is included in the sale price or calculated separately. If it’s clear the shipping is separate, it’s not taxed, Hofer said. “It’s kind of a funky thing,” she said. “There’s a whole regulation that establishes when shipping is taxable.”
Target.com charges 6.25 percent, but applies the rate to the iPod plus the shipping charge. That’s because of Target’s interpretation of Illinois tax law. “In Illinois, shipping is part of the taxable base,” said Target spokeswoman Molly Snyder. “Target adheres to all laws and regulations set forth by the state.”
Amazon, Apple and Best Buy did not respond to requests for comment.
Source: MCT Information Services