News and Insights

Illinois Direct Pay Program

Tax Development Oct 25, 2001

Effective July 1, 2001, the Illinois Department of Revenue (the "Department") has established a Direct Payment Program (the "Program") (Illinois House Bill 3289, enacted into law as Public Act 92-0484). Under the new Program, any taxpayer who has been issued a Direct Pay Permit is no longer required to pay the applicable transaction tax (either the Retailers' Occupation Tax or the Use Tax) to the retailer when purchasing tangible personal property for use or consumption in Illinois. Any retailer who receives a valid Direct Pay Permit from its customer is relieved of any obligation to remit the applicable tax on those transactions.

Once a holder of a Direct Pay Permit uses the Permit to relieve the holder of its tax payment obligation to a specific retailer, the holder must use its Permit for all purchases with the exception of those items specifically excluded by the new statute. The Direct Pay Permit is not valid for purchases of food or beverages, tangible personal property required to be titled or registered with a governmental agency, and any transaction subject to the Illinois Service Occupation Tax or Service Use Tax.

The Department has discretion regarding approval of applicants for acceptance to the Program. Specifically, each applicant must demonstrate: (1) its ability to comply with the state's tax laws; (2) a valid business purpose for participating in the Program; and (3) how the applicant's participation in the Program will benefit tax compliance.

Holders of Direct Pay Permits are responsible for paying the applicable taxes to the Department, through the use of electronic funds transfer, no later than the 20th day of the month following the month in which the purchases were made. The tax must be reported and paid by the Permit holder in the same manner that the retailer from whom the purchases were made would have reported and paid it. This includes any local Retailers' Occupation Tax applicable to that retail sale.

If you have any questions regarding the Illinois Direct Payment Program, please call Jim Kranjc, Senior Manager in Charge of the Chicago office of Ryan & Company at 630.515.0477 x173822. You can also reach Mr. Kranjc by e-mail.