Illinois sales tax guide

All you need to know about sales tax in the Land of Lincoln.

Learn more about sales tax

Introducing our Sales Tax Technology 101 series. The first installment covers the basics of sales tax technology: what it is and how it can help your business.
 

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Sales tax 101

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Illinois first adopted a general state sales tax in 1933, and since that time, the base sales tax rate has risen to 6.25 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0 percent and 4.75 percent. Currently, combined sales tax rates in Illinois range from 6.25 percent to 11 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the state of Illinois by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Illinois is administered by the Illinois Department of Revenue (DOR).

Any sales tax collected from customers belongs to the state of Illinois, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

When you need to collect Illinois sales tax

In Illinois, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto tax collector.

To help you determine whether you need to collect sales tax in Illinois, start by answering these three questions:

  1. Do you have nexus in Illinois?
  2. Are you selling taxable goods or services to Illinois residents?
  3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, then you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

Failure to collect Illinois sales tax

If you meet the criteria for collecting sales tax and choose not to collect sales tax, you’ll be held responsible for the tax due, plus applicable penalties and interest .

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.


Sales tax nexus

The need to collect sales tax in Illinois is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Nexus triggers

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in Illinois, it’s now possible for out-of-state sellers to have sales tax nexus with Illinois.

Out-of-state sellers

Out-of-state sellers with no physical presence in Illinois can establish sales tax nexus in the following ways:

Affiliate nexus: Having ties to businesses or affiliates in Illinois. This includes, but isn’t limited to, the design and development of tangible personal property (goods) sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer. Affiliate nexus can also be established if:

  • The remote retailer pays a commission or other consideration to the person located in Illinois; and
  • The remote retailer’s cumulative gross receipts from all sales made to Illinois customers under such contracts exceed $10,000 during the preceding four quarterly periods.

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and having cumulative gross receipts from sales of tangible personal property by the retailer to customers referred by all persons in Illinois that exceed $10,000 during the preceding four quarterly periods.

Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after October 1, 2018, a remote seller must register with the state then collect and remit Illinois sales tax if the remote seller meets either of the following criteria (the economic thresholds):

  • The remote seller's cumulative gross receipts from sales of taxable and exempt tangible personal property to purchasers in Illinois are $100,000 or more in the preceding 12 months; or
  • The remote seller sold taxable and exempt tangible personal property into Illinois in 200 or more separate transactions during the preceding 12 months.

Trade shows: Attending conventions or trade shows in Illinois. You may be liable for collecting and remitting Illinois use tax on orders taken or sales made during Illinois conventions or trade shows. However, you generally would not have nexus if all the following are true:

  • You’re in the state solely to engage in convention or trade show activities;
  • You or your representatives attend no more than two Illinois trade shows during any calendar year;
  • You’re physically present at those two Illinois trade shows no more than eight days during any calendar year; and
  • Combined gross receipts from taxable sales made at all Illinois trade shows during any single calendar year do not exceed $10,000.

If you have sales tax nexus in Illinois, you’re required to register with the Illinois Department of Revenue and to charge, collect, and remit the appropriate tax to the state.

For more information, see the Illinois Department of Revenue Use Tax Guidance for Remote Sellers, General Definitions, Use Tax, and Trade Show Appearances.

Trailing nexus

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of April 2019, Illinois does not have an explicitly defined trailing nexus policy.

Fulfillment by Amazon (FBA)

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. The Avalara TrustFile FBA Inventory Report can help demystify FBA shipping and storage patterns. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Illinois.

If you sell taxable goods to Illinois residents and have inventory stored in the state, you may have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

Sourcing sales tax in Illinois: which rate to collect

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

Illinois generally uses destination-based sourcing. This means you’re responsible for applying the sales tax rate determined by the ship-to address on all taxable sales.

For additional information, see the Illinois Department of Revenue.


Getting registered

After determining you have sales tax nexus in Illinois, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Illinois business license and sales tax registration.

How to register for an Illinois seller's permit

You can register for an Illinois seller’s permit online through the DOR. To apply, you’ll need to provide the DOR with certain information about your business, including but not limited to:

  • Business name, address, and contact information
  • Federal EIN number
  • Date business activities began or will begin
  • Projected monthly sales
  • Projected monthly taxable sales
  • Products to be sold

Cost of registering for an Illinois seller's permit

There is currently no cost to register your business in Illinois.

Acquiring a registered business

You must register with the Illinois Department of Revenue if you acquire an existing business in Illinois. The state requires all registered businesses to have the current business owner’s name and contact information on file.

Streamlined Sales Tax (SST)

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

As of April 2019, Illinois is not an SST member state.


Collecting sales tax

Once you've successfully registered to collect Illinois sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the DOR, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect Illinois sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store?Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Illinois sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

Illinois sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Tax-exempt goods

Some goods are exempt from sales tax under Illinois law. Examples include fuel for international flights, gold bullion issued by qualifying governments, and newspapers and magazines.

We recommend businesses review the laws and rules put forth by the DOR to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Tax-exempt customers

Some customers are exempt from paying sales tax under Illinois law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Misplacing a sales tax exemption/resale certificate

Illinois sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the DOR may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year.

As of April 2019, however, there are no sales tax holidays in Illinois.


Filing and remittance

You're registered with the Illinois Department of Revenue and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Illinois, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

How to file

Once you’ve collected sales tax, you’re required to remit it to the DOR by a certain date. The DOR will then distribute it appropriately.

Filing an Illinois sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the DOR. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

Online filing is generally recommended, but paper returns are acceptable. However, online filing is required when annual liability is $20,000 or more.

Filing frequency

The DOR will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

Illinois sales tax returns and payments must be remitted at the same time; both have the same due date.

Online filing

You may file directly with the DOR by visiting their site and entering your transaction data manually. This is a free service, but preparing Illinois sales tax returns can be time-consuming — especially for larger sellers.

Using a third party to file returns

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Illinois sales tax code.

Avalara TrustFile provides a quick and easy way to prepare and efile sales tax returns. Users can sign up and use the service to prepare returns for free for a limited time.

Filing when there are no sales

Once you have an Illinois seller's permit, you’re required to file returns at the completion of each assigned collection period regardless of whether any sales tax was collected. When no sales tax was collected, you must file a "zero return.”

Failure to submit a zero return can result in penalties and interest charges.

Closing a business

The DOR requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Timely filing discount

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.

As of April 2019, the DOR offers a discount of 1.75 percent of the tax paid, or $5 per calendar year, whichever is greater.


Filing due dates

It's important to know the due dates associated with the filing frequency assigned to your business by the Illinois Department of Revenue. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The DOR requires all sales tax filing to be completed by the 20th of the month following the assigned filing period. Below, we've grouped Illinois sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

Illinois 2019 monthly filing due dates

Reporting period Filing deadline
January February 20, 2019
February March 20, 2019
March April 22, 2019
April May 20, 2019
May June 20, 2019
June July 22, 2019
July  August 20, 2019
August September 20, 2019
September October 21, 2019
October November 20, 2019
November December 20, 2019
December January 21, 2020

Illinois 2019 quarterly filing due dates

Reporting period Filing deadline
Q1 (January 1–March 31) April 22, 2019
Q2 (April 1–June 30) July 22, 2019
Q3 (July 1–September 30) October 21, 2019
Q4 (October 1–December 31) January 21, 2020

Illinois 2019 annual filing due dates

Reporting period Filing deadline
2019 January 21, 2020

Late filing

Filing an Illinois sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event an Illinois sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the DOR may grant you an extension. However, you may be asked to provide evidence supporting your claim.


Penalties and interest

Hopefully you don't need to worry about this section because you're filing and remitting Illinois sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the DOR and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Illinois sales and use tax liability.


Shipping and handling

Because Illinois is the sixth most populous state in the U.S., with a population of more than 12.7 million, most businesses have customers in the Land of Lincoln. If you’re collecting sales tax from Illinois residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Determining how Illinois sales tax applies to charges for shipping, delivery, freight, handling, and postage is no easy task.

Delivery charges included in the sales price of taxable products are generally taxable if there is no way for the customer to pick up the product. Separately stated delivery charges are generally exempt from sales tax when the seller offers the purchaser free transportation and delivery of the property, qualified transportation and delivery of the property, or the option to pick up the property — as long as the selling price of the tangible personal property isn’t affected by delivery charges.

When the selling price of the taxable tangible personal property increases due to delivery, the transportation and delivery charges are subject to sales tax.

When a shipment contains both exempt and taxable goods, the tax on delivery charges may be calculated for each separately listed item if the invoice itemizes the delivery charge for each item.

However, if an invoice contains a lump sum delivery charge for separately listed items, the lump sum delivery charge will not be taxable if the selling price of the items for which delivery is nontaxable is greater than the selling price of the items for which delivery is taxable.

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Illinois and sales tax should be taken directly to a tax professional familiar with Illinois tax laws.

For additional information, see the DOR’s Transportation and Delivery Charges.

Register your business to collect sales tax