Updated July 23, 2015
Currently the Chicago Illinois sales tax rate for general merchandise is 9.25%. The Chicago sales tax rate for food, drugs, and medical appliances is 2.25%.
Sales tax returns, or The Illinois Department of Revenue Form ST-1, are one of the most commonly audited forms or tax types in our state. One of the reasons for this is that they are difficult to prepare properly. Sales tax is a huge money maker for Springfield. Given the state’s ever present financial woes, they love to audit these forms. Auditing brings in huge amounts of additional revenues. This is naturally generated when people who don’t know what they are doing try to complete their own forms.
One of the difficulties in performing proper accounting for these returns is the basis upon which the form must be completed. Sales tax returns are, by definition, cash basis returns rather than accrual basis. One of the natural difficulties, and usual audit red flags, is the difference between your sales and income tax returns. Please realize that both the sales tax returns and your state income tax returns go to the same agency. If the income between the two sets of forms is extremely different, then naturally the state will probably want to audit to make sure that you are not evading either sales or income taxes.
Further, let’s also remember that not everything you sell is subject to sales tax. If something is sold to a charity or out of state, you are not required to collect and remit sales tax. You must document the sale properly so that you can prove that you were not expected to collect the tax in the event of an audit. If you sell something to a reseller or to a manufacturer as part of a manufactured product, then you are not required to collect sales tax, but once again this must be documented properly. Delivery costs and other services are also not subject to Chicago sales tax.
But our emphasis must be on the documentation, accounting, and proper preparation of the form. In the event of a sales tax audit, you are guilty until proven innocent. They aren’t simply going to take your word for it and give you a pass because they think that you are a nice person. Without the proper documentation, they will probably asses the additional tax, interest, and penalties. At this point, many think that bankruptcy is a viable option. It is not. Neither a business nor a personal bankruptcy will relieve any sales tax balance owed to the state. As the trustee, working on behalf of the state collecting sales taxes, it was your job to get the state their money. Sales tax balances can neither be included in bankruptcies nor discharged in one. If this is your circumstance then an Offer in Compromise along with other possible program reductions can be instituted, prior to a potential payment plan. Please call our offices for a free consultation.
If you are having problems with your Chicago Illinois Sales Tax Rate or have issues with your accounting in general, we would love to help. I enjoy hearing from my readers, and can be contacted at
Chris@AccountingSolutionsltd.com
Additional Accounting Articles and information on my firm can be found at
www.AccountingSolutionsLtd.com
Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.