Illinois Sales Tax

The State of Illinois’s sales tax laws are highly dependent on the location of a sale in the state, meaning there are a number of factors to consider when determining the rate you will collect. With state sales tax, home rule tax, non-home rule tax, and several other location-dependent sales taxes, it’s important to know exactly what you are expected to pay based on location in advance.

Illinois Sales Tax Tates

Illinois has a base state sales tax rate of 5%. In addition to this rate, there are also several location specific sales taxes. These are administered by both home rule units and non-home rule units. A home rule unit in Illinois is defined as a county with a chief executive officer or a municipality with a population of at least 25,000. It is possible for smaller municipalities to vote to become home rule units as well. These home rule sales tax rates are defined on The State of Illinois’s Department of Revenue website, and are between 0.25% and 2.50% depending on location.

Additional local sales taxes at the county level include County Public Safety, Public Facilities, and Transportation Sales Taxes. These are charged at the county level and range between 0.25% and 1.25%. An additional 1.00% sales tax is also charged in certain counties with the County School Facility Tax Rate. All of these taxes are rolled together into either State, Local, or County level taxes and all are collected by the State of Illinois, though some local governments may impose taxes beyond these.

The above rates apply to general merchandise, which includes most tangible property, with the exception of qualifying food, drugs, and medical appliances, and any items that require a title or registration.

Determining Sales Tax Nexus in Illinois

The above tax rates need only be collected if you have sales tax nexus in the State of Illinois. To determine if this applies to you, there are a number of things to consider. There are also some exemptions on specific goods, even if you do have nexus in the state. For those that do not currently operate out of Illinois, here is how to determine if you have nexus and will need to collect Illinois sales tax on select transactions.

The following constitute nexus in the state:

• Any third party affiliates or partners operating in Illinois
• Any form of representation as an agent, contractor, employee or otherwise in Illinois
• Any place of business in Illinois, including an office, warehouse, or other place of business.

While there are some possible changes pending in Illinois, including the Streamlined Sales Tax guidelines that they have yet to implement, the above will allow you to determine nexus currently.

What Is Eligible for Sales Tax in Illinois?

Like most states, Illinois has a list of items that are not subject to sales tax. This list of exemptions includes the following physical goods:

• Services – The majority of services in Illinois are not subject to sales tax. There are, however, exceptions to this rule including activities that involve creating or manufacturing a finished good for sale.
• Certain Food, Drugs and Medical Appliances – While not always immune from sales tax, these items are taxed differently in Illinois. This includes food that is not prepared for immediate consumption, prescription medications, and prescription medical appliances that are used to replace a malfunctioning part of the human body (contact lenses, eyewear, prostheses, dentures, and syringes for insulin).
• Vehicles requiring registration or titling – Motor vehicles, watercraft, aircraft, and trailers, and other vehicles that must be registered have different tax requirements, which you can read in STS-76, Illinois’s Vehicle Tax Information Guide.

Because of the complexity of the sales and use tax restrictions in Illinois, there are several things to keep in mind. It’s recommended to reference Regulation 130.310 on the Illinois Revenue website, which goes into greater details on the general merchandise to which sales tax must apply.

Illinois Sales Tax Registration

To collect sales tax in the State of Illinois, a business must first register for a sales tax permit, required before you make any purchases or sales and before you hire your first employee. To do so, you can use the MyTaxIllinois website or you can complete the paper form, REG-1 to obtain your sales tax permit.

To complete your sales tax permit application, you will need all of your business’s identifying information, a detailed breakdown of your business structure, owners, and officers, and a list of what you will be collecting sales tax on. The process is free and takes about 2 days online, or 6-8 weeks if you mail the paper form to process, so it’s recommended you file this as early as possible so you have a permit in hand before you start operating in Illinois.

Once you receive your permit, you are not required to renew it regularly, but it is recommended to keep it up to date with relevant information as your business grows.

Filing Illinois Sales Tax Returns

You will pay Illinois sales and use tax by:

• For Those in State – Illinois is an origin-based state so you will collect sales tax based on where you are located in the state. Because of the varied nature of county, municipality, and state rates, this makes the process much easier.
• For Those Out of State – For those outside of Illinois who have nexus in the state, you must charge sales tax based on the destination of the purchase. This requires careful tracking of locations and the ability to quickly calculate the final sales tax rate for any given location in the state.
• Shipping and Handling – Shipping is not taxable if it is itemized from the item being purchased. If the two are not separated, however, it is subject to tax and you will need to collect it based on destination of the buyer.
• Filing Your Return – To file your sales tax return with the State of Illinois, you can use the My Tax Illinois website or you can file the form ST-1 via mail.

How frequently you need to file your sales taxes will be determined by the amount of sales tax you collect on a regular basis. Your frequency will be determined at the time you obtain your permit, and may change at any time. If the Illinois Department of Revenue decides to change your frequency, they will notify you before the next payment is due. The following frequencies apply depending on your liability:

• Annual – Less than $50 due per year
• Quarterly – Between $50 and 200 per year
• Monthly – More than $200 per year

Illinois offers a discount to those who pay their collected sales tax early or on time on a regular basis. The discount varies depending on what is owed and on your filing frequency. Because one third of the 6% sales tax rate cannot be discounted, it is recommended you use the calculator available on the Illinois Department of Treasury website to calculate this number.

Illinois Sales Tax Deadlines

Quarterly: The following deadlines apply to those whose sales tax liability in Illinois is between $50 and $200 per year:

Period	Due Date
January – March (Q1)	April 20
April – June (Q2)	July 20
July – September (Q3)	October 20
October – December (Q4)	January 20

Monthly: The following deadlines apply to those whose sales tax liability in Illinois is greater than $200 per year:

Period	Due Date
January	February 20
February	March 20
March	April 20
April	May 20
May	June 20
June	July 20
July	August 20
August	September 20
September	October 20
October	November 20
November	December 20
December	January 20

Annual: For those businesses with liability less than $50 per year, you will file annually and only online.

Penalties and Interest for Late Payments

If you fail to pay your sales tax due to Illinois on time, there will be penalties and fees applied. For a late filing, there is a flat 2% applied to the total of the tax due. If you pay late, you’ll owe 2% of tax due within 30 days, 10% if paid between 30 and 90 days, 15% if paid between 90 and 180 days, and 20% if the tax is more than 180 days late. There are more extreme penalties that may apply for those with serial offenses or if there is evidence of fraud in your returns.

Filing is required for all who have a sales tax permit, including those with a zero return. Penalties can also apply if you don’t file at all, even with a zero return.

Resources:

• Illinois Department of Revenue Website
• My Tax Illinois Portal for Online Payments (click the "start over" link if necessary)
• County-Specific Tax Rates throughout Illinois
• Sales and Use Tax Definitions in the State of Illinois

Illinois Sales Tax Software

Illinois’s variable sales tax rates can be frustrating for out of state sellers who don’t have a means of tracking the different rates based on location. It is important that you record and pay the sales tax due on time for the states in which you have sales tax nexus. This is where a tool like TaxTools can be of use. With detailed data review tools, sorting tools to ensure you are paying the right sales tax rates based on buyer destination, and integration with existing eCommerce platforms in a single interface, it’s much easier to manage than doing it manually. To learn more, contact us today or click here to sign up for a free trial and get started.