In Illinois there are four main kinds of sales and use tax. There’s the Retailer’s Occupation Tax (ROT), the Service Occupation Tax (SOT), the Retailers’ Use Tax (RUT) and the Service Use Tax (SUT). In all four cases, the state assesses a tax on purchase of a good or service. For products ROT or RUT apply and SOT and SUT apply to services.
Use tax is something many people know little about, but it’s becoming something more people are learning about as the state, facing serious budget shortfalls, becomes more aggressive in finding unreported tax revenue. Most of us understand sales tax pretty well. Buy something in Illinois and you’ll pay Illinois sales tax (ROT or SOT). Pretty straightforward. Use tax, whether for retail products or for services, is paid on products and services you use in the state (hence the name) but for which you paid less than the state’s sales tax rate (currently 6.25%) for.
An example. If you by a shirt in a state with sales tax less than 6.25% (for simplicity’s sake let’s say that state charges 4% sales tax), then you owe the Illinois Department of Revenue (IDOR) the difference, i.e. 2.25% of the purchase price, in use tax. If you bought something online and paid no sales tax, then you owe the full 6.25% to IDOR on the purchase. This applies to both retail products (RUT) and services (SUT).
For more information on ROT, RUT, SOT and SUT, or for other tax information or tax related legal concerns, contact Horowitz & Weinstein.