Illinois expands hotel occupation tax to include short-term rentals

Illinois short-term rental (STR) properties will be subject to the state Hotel Operators’ Occupation Tax under the fiscal year 2026 budget passed by the Illinois General Assembly. The new tax, with a rate of 6% of 94% of gross receipts, goes into effect July 1, 2025.

Previously, hotels were subject to the tax, but STRs weren’t. While STR business owners are responsible for paying the tax, they may reimburse themselves by collecting the tax from guests. The new law will add the occupation tax to other state and local lodging taxes that currently apply to STRs.

In Illinois, lodging taxes are imposed on the occupation of renting, leasing, or letting rooms to persons for living quarters for periods of less than 30 consecutive days. STR operators are required to register with the Illinois Department of Revenue to receive a certificate of registration and taxpayer ID. In addition to the Hotel Operators’ Occupation Tax, the Department of Revenue administers state and local taxes that include:

• Illinois Sports Facilities Hotel Tax (Chicago)
• Metropolitan Pier and Exposition Authority Hotel Tax (Chicago)
• Municipal Hotel Tax (Chicago)

Operators must file lodging tax returns with the state on a monthly, quarterly, or annual basis. Depending on location, operators may also be required to register with local tax authorities and file locally administered lodging tax returns.

In Illinois, all mandatory charges are subject to lodging tax. This includes items such as cleaning fees, pet fees, rollaway bed fees, extra person fees, etc. Fees for optional laundry services or food and beverage purchases aren’t subject to lodging taxes. However, they may be subject to sales taxes.

Effective January 6, 2026, STR marketplaces such as Airbnb and Vrbo are required to pay Illinois lodging taxes and can collect these taxes from guests when the stay is paid for.

Short-term rental operators in Illinois should be aware of the local regulations that apply to them, including rules covering:

• Legality
• Permits, licenses, and registration
• Zoning
• Advertising
• Neighborhood notification
• Building and housing standards

Homeowner associations (HOAs), condominium communities, co-ops, and landlords may also have specific rules regarding vacation rentals. 

For example, Chicago approved an STR ordinance in 2016. Providers of rentals of 31 days or fewer are required to obtain an annual license from the city and follow rules on zoning, safety, and sanitation, among other requirements. The city sets limits on the number of STR units allowed in multifamily buildings, and only primary residences can be rented in single-family homes. STR platforms such as Airbnb and Vrbo must also be licensed and collect lodging taxes for all transactions in Chicago.

Avalara MyLodgeTax can help vacation rental hosts automate and simplify lodging tax compliance on the local and state level, including tax registration and filing. For more on lodging taxes in Illinois, see our state vacation rental tax guide. If you have tax questions related to vacation rental properties, drop us a line and we’ll get back to you with answers.