Managed Compliance Agreement (Direct Payment Permit Program) for Sales and Use Taxes

• Statutory - 35 ILCS 120/2-10.5

• Regulations - 86 Ill. Adm. Code Sections 130.2500 – 130-2535

                       (Section 130.2532, Annual Review, coming soon!)

The Illinois Department of Revenue's (IDOR) Audit Bureau administers the Direct Payment Permit Program which is an arrangement between IDOR and taxpayers representing a cost-saving alternative to traditional sales and use tax compliance methods. "Direct pay" is a term often used interchangeably with a Managed Compliance Agreement (MCA) or Single Use Tax Compliance Agreement (SUTCA). Other states utilize these similar arrangements to simplify a taxpayer's use tax calculation and remittance. In Illinois, approval for a Direct Pay Permit involves a thorough review process, including a sales and use tax audit. 

Under this program, an approved taxpayer is issued an Illinois Direct Payment Permit (ST-46). The permit holder may purchase, following established guidelines, items without initially paying Sales and Use Tax to the permit holder's supplier on these transactions. Instead, the permit holder performs a monthly determination of its Illinois Sales and Use Tax liability on its cumulative purchases and reports that liability and remits payment directly to IDOR on Form ST-1, Sales and Use Tax and E911 Surcharge Return. 

Effective on and after January 1, 2021, Illinois applies a destination-based sales tax rate to purchases made by Direct Pay Permit holders from certain remote (out-of-state) retailers' and certain marketplace facilitators. For more information, see PIO-110, our direct pay tax determination flowchart.

"Destination-based sales tax rate" means the tax due on the direct pay permit purchase is based on the location in Illinois to which the purchased item was shipped or delivered or at which possession was taken by the permit holder. Depending upon the location of the sale, the actual rate may be higher than the Illinois sales and use tax rate of 6.25 percent because of home rule, non-home rule, mass transit, park district, flood prevention district, county public safety, public facilities or transportation, county school facility, and municipal business district tax.

Effective January 1, 2025, Direct Pay Permit holders are responsible for completing an annual review of all transactions made using their Direct Pay Permits for the previous calendar year. Confirmation of the annual review is due no later than March 31, of the following tax year and will be submitted using your MyTax Illinois account. The new reporting requirement seeks to ensure that the correct tax rate and location are used when remitting Illinois Sales Tax on purchases made using Direct Pay Permits, in order for local governments to receive accurate distributions of local taxes collected as part of the Illinois Retailers' Occupation Tax rate. IDOR will send permit holders an annual reminder to complete the review prior to the due date.

If any errors in sourcing or the tax rate are discovered during the review process, the permit holder is required to file amended returns for the affected periods no later than April 20, in the year for which the annual review is conducted.

Note: If the annual reporting confirmation or amended return due dates fall on a holiday or weekend, the due date is extended to the next business day. Failure to comply with the annual reporting requirement, or file amended returns and pay the correct tax amounts as a result of the annual review, may result in a $6,000 penalty for each year of noncompliance. For more information on the new requirements, see 

Compliance Alert CA-2025-01, Changes to Increase Participant Compliance in the Illinois Department of Revenue’s Direct Pay Permit Program.

Note: New regulations regarding the annual review and penalty are expected to be available by the end of the first quarter, 2025.

Email the Audit Bureau at REV.IllinoisDirectPaymentProgram@Illinois.gov to request Form ST-45, Direct Pay Permit Application. Be sure to include this language in the subject line of your email: "Request to apply for participation – Direct Pay Program."

We ask that review the following information about the Direct Pay Permit Program prior to contacting us for an application:

• ST-47, Information for Direct Payment Program Participants 
• ST-48, Information for Retailers Who Sell To Direct Payment Program Participants 
• PIO-110, Direct Pay Permit Holder Tax Determination Flowchart

Email us at REV.IllinoisDirectPaymentProgram@Illinois.gov. Be sure to include "Request to cancel participation – Direct Pay Program" in the subject line of your email, and attach a letter on company letterhead that includes the following information:

• The date that the letter is issued;
• The name and address of the permit holder;
• The permit holder's Illinois Account ID Number;
  
• The reason for cancellation; and 
• The effective date of  the cancellation.

Any company whose Direct Pay Permit status is voluntarily withdrawn must immediately notify all vendors from whom purchases are made, advising them that the Direct Pay Permit issued to them is no longer valid. Withdrawal from the program will be effective as of the end of the permit holder's normal reporting period following the date of the written notice of withdrawal. 86 Ill. Adm. Code 130.2535.

If you need further assistance, email us at REV.IllinoisDirectPaymentProgram@Illinois.gov.