How to Get an Illinois License to Sell Tobacco Products and Pay Tax
If you plan to or currently sell tobacco products, including e-cigarettes or vape products, in the state of Illinois, then tobacco and vape licensing and tax requirements should be top of mind with every transaction. Illinois’ Department of Revenue (IDOR) is the agency primarily responsible for enforcing those requirements against businesses that sell tobacco products. Failure to follow their rules can lead to suspension or termination of your license in addition to financial penalties. However, tobacco businesses in Illinois should also be mindful of their potential licensing and tax obligations to various municipalities and counties such as Chicago.
What Type of Illinois Tobacco Licensing Do You Need for Your Business?
The type(s) of licensing you could need in Illinois will depend on your answers to a few questions:
- To whom are you selling tobacco products?
- Where in Illinois are you selling tobacco products?
- How many locations do you operate?
For tobacco and vape licensing purposes, Illinois distinguishes tobacco businesses as either retailers or distributors. Each has its own license process.
Illinois Licensing for Distributors or Manufacturers of Tobacco Products
A distributor is any business, such as a manufacturer or wholesaler, that sells or transfers tobacco products to retailers, consumers, or other distributors. Before conducting any business, you will need to complete and submit Form REG-1 and Schedule REG-1-C to register your company with the IDOR and obtain a taxpayer identification number. Along with the registration application, you will need to file a bond using Form REG-4-A (Financial Responsibility Bond) or Form REG-4-D (Financial Institution Irrevocable Letter of Credit Bond). The amount of the bond will be the lesser amount of $50,000 or three times your monthly average tobacco tax liability.
Illinois Tobacco Products Retailer License
If you plan to sell tobacco products directly to consumers, then you will need to register for and obtain a separate license. Each physical location where you make retail sales will need its own license, which you can complete online at My Tax Illinois. The annual license fee is $75 per location.
Understanding Your Illinois Tax Compliance Obligations as a Tobacco Business
Illinois has three different levels of tobacco taxation that businesses must be conscious of when transacting with distributors, retailers, and consumers. These taxes include the following:
- Illinois state tobacco products tax
- Local tobacco products tax
- Retailer occupation tax
Like your licensing requirements, the taxes you are responsible for collecting and remitting to the appropriate agency will depend on the nature of your sales. However, distributors and retailers alike are responsible for keeping the necessary records (e.g., invoices) showing the applicable tax has been paid on the tobacco product in their possession.
Who Collects and Remits the Illinois Tobacco Products Tax?
The tobacco products tax applies to most sales (other than cigarettes but including e-cigarettes), and the IDOR imposes the tax on the distributor for the wholesale price of the first distribution into the state. The distributor then collects the tax from the buyer and remits it to the IDOR. The current rate for the tobacco products tax is 36 percent, but different rates apply for the sale of moist snuff tobacco ($0.30 per ounce) and e-cigarettes (15 percent). Along with the payment of tax, the distributor is responsible for filing monthly tobacco products tax returns that are due on the 15th of each month for the prior month’s sales using Form TP-1.
Retailers and other distributors should still be careful when buying tobacco products to confirm tax will be paid on the purchase and have documentation to support it. Otherwise, the retailer may be liable to register as a distributor with the IDOR and pay any owed tax on their tobacco product.
Tobacco Products Tax in Certain Local Jurisdictions within Illinois[GS1] [JD2] for Cigarettes and e-Cigs
Illinois is one of several states that allows some local jurisdictions to impose their own tobacco products tax in addition to the state-level tax. However, the Illinois legislature limited this authority to jurisdictions that had tax policies in effect before 1993, which includes four localities:
Vendors in these areas must be aware of local registration and tax remittance requirements to ensure compliance necessary for the continued operation of their tobacco business. This is especially true if they have a vape license and sell vape products in their store.
Retailer Occupation Tax Applies to Tobacco Product Sales
Finally, sales of tobacco products to consumers or other end-users will trigger Illinois’ retailer occupation tax (i.e., sales tax). Retailers are responsible for collecting the tax from consumers and remitting it to the IDOR with their tax returns. Distributors should collect a certificate of resale (Form CRT-61) when making a sale to a retailer or non-consumer.
For Help with Your Illinois Tobacco Licensing or Tax Compliance
Licensing and tax compliance are two of the biggest issues for tobacco businesses operating in the state of Illinois. With all the rules at play, making a small mistake can lead to devastating consequences in the form of revoked licensing, temporary or permanent closure of your business, and expensive tax bills. When the IDOR sends a notice about a potential violation, our consultants are available to intervene and defend your interests with state representatives and provide guidance on obtaining compliance so you can get back to your business operation.
Contact Tobacco Tax Refund today for help with your concerns about tobacco product tax or licensure in Illinois.