Illinois’ New Sales Tax Law for Auctioneers

It’s become evident that Illinois State tax law is ever-changing legislation. In what appears to be an attempt to garner revenue for the state, Governor JB Pritzker has enacted changes to the state tax code in regards to how auctioneers conduct business with their clients. However, these new developments present challenges for all parties involved as the market continues to expand and evolve.

Under this new legislation dubbed “Levelling the Playing Field for Illinois Retail Act” in a September 2020 bulletin released by the Illinois Department of Revenue, it “implements a series of structural changes to the Illinois sales tax laws to require ‘remote retailers’ to remit State and local retailers’ occupation taxes beginning January 1, 2021.” Remote retailers are defined as “an out-of-state retailer that sells tangible personal property to Illinois purchasers and does not have a physical presence in Illinois.” These individuals will now have to pay a ‘retailers occupation tax’ or ROT. However, it continues to affect Illinois residents as well under its clause concerning “marketplace facilitators.” A marketplace facilitator is “a person that makes sales through a marketplace operated by an unrelated third-party marketplace facilitator and who has obtained a certification from the marketplace facilitator.” The most prominent group of newly christened marketplace facilitators are Illinois auctioneers.

Marketplace facilitators only have to pay a ROT if  “the cumulative gross receipts from sales of tangible personal property to purchasers in Illinois made through the marketplace by the marketplace facilitator and by marketplace sellers are $100,000 or more; or the marketplace facilitator and marketplace sellers selling through the marketplace cumulatively enter into 200 or more separate transactions for the sale of tangible personal property to purchasers in Illinois.” Unfortunately for the aforementioned auctioneers, gross sales often exceed $100,000,  as well as have more than 200 items sold at most times for a single auction. Due to this, auctioneers now find themselves in the midst of a changing legal landscape in which their business models must change – presenting new issues and logistical problems for everyone involved.

It is important to note that this bill only affects personal property sold at auctions that does not have a title attached to them. Due to the titles that already exist on items such as vehicles, any transactions will automatically go through the Secretary of State’s office instead of the Department of Revenue as normal. But what about the multitude of pieces sold at auctions that don’t have titles? In years past, only items that have never been sold before (“new” items) would have to collect sales tax, while ones sold multiple times beforehand would not, as they already would have been taxed. However, this new bill requires auctioneers to collect sales tax from their buyers on every individual item, regardless if the item has been sold before.

This poses unique and unprecedented challenges for auctioneers, bidders, and sellers alike. While all auctioneers are different, most in the past merely acted as a facilitator of transactions, making a small commission off of every item sold. The aforementioned “new” items were taxed, while old ones were bought and sold without the need for taxation. However, under these guidelines, auctioneers become responsible for the tedious task of taxing each item under the differing tax rates of Illinois counties. Items sold in Sparta for instance will be taxed at 8.25% while items sold in Hecker will be taxed at 7.5% per the Illinois 2021 Sales Tax Handbook. The variation of sales tax percentages combined with the existing recording of items bought and sold makes it incredibly difficult for auctioneers to run at the pace before the law, due to the new costs of labor such record-keeping entails. To make things more precarious, if mistakes were ever to be found by the Department of Revenue in the transaction history submitted, auctioneers would face a possible audit in which they would be forced to pay large sums of money to make up the difference. In other words, this new law imposes not only more labor for auctioneers but adds a new element of risk.

For bidders, the issue is similarly profound. Due to new guidelines, the bidders will be bidding fewer dollars in order to offset the taxes at the end, while at other times not backing off and ultimately paying a premium once the taxes are added at the end. Meanwhile, sellers will not be making as much profit off their items due to the fact that they will be taxed, whereas before they had not. Thus, the system fails at “leveling the playing field” and only overcomplicates the transactional nature of auctions without due purpose, in favor of increasing revenue for the state.

Perhaps what is most upsetting, is the fact that these changes were not communicated to the individuals who they would affect the most, leaving many auctioneers in the dark for months. Many found out about the new legislation via Facebook and other platforms instead of the Department of Revenue. A four-page bulletin attempts to make sense of these changes but leaves much to be desired in terms of its language and content in general. While the government has no obligation to actively communicate directly to these groups, this lack of viable information from their departments puts a multitude of businesses and individuals at risk. In addition to this, questions are already being posed concerning internet marketplaces such as the Waterloo Swap and Sell, where goods are actively bought and sold, but an actual entity is not present. Are sellers on these platforms obligated to collect sales tax? These are the questions that need answering, yet there seems to be no clear answer for the foreseeable future.

However, as of January 8th, 2021, there are several state representatives attempting to amend the bill to protect auctioneers and their clients from a potentially disastrous outcome for all parties involved. While these talks are still in progress, it is quite possible that the existing bill could change to benefit rather than harm. In the meantime, it is clear that the relationship between auctioneers, clients, and buyers will continue to be redefined by this legislation.

Written by Eden Stratton