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 has a base state sales tax rate of 6.25% on cumulative gross receipts. 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. Home rule sales taxes can rise in increments of 0.25% and have no maximum limit.
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.
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 physical presence nexus and will need to collect Illinois sales tax on select transactions.
The following constitute physical presence for nexus in the state:
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.
Economic nexus was implemented in 2018 following the Wayfair Supreme Court ruling. Illinois small businesses and corporations that make $100,00 or more in cumulative gross receipts of tangible personal property or 200 or more separate transactions in the State of Illinois are required to collect and remit sales tax. Nexus is measured and determined at the end of each quarter for the preceding 12-month period.
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:
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 detail on the general merchandise to which sales tax must apply
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.
You will pay Illinois sales and use tax by:
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:
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.
Quarterly: The following deadlines apply to those whose sales tax liability in Illinois is between $50 and $200 per year:
|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:
Annual: For those businesses with liability less than $50 per year, you will file annually and only online.
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 or $250, whichever is smallest. If you pay late, you’ll owe 2% of the 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.
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.
Last Updated May 2022