The Illinois Retailers Occupation Tax Act states that “retailers” have nexus in the state. Activities that create nexus include:
Having a store, office, warehouse or other place of business
Having employees, contractors, salespeople, installers or other personnel in the state
Having a 3rd party affiliate in the state OR
Economic nexus - You have no other nexus in the state, but your gross revenue exceeds $100,000 or you makes more than 200 separate transactions to buyers in the state during the previous 12-month period
Most tangible personal property is subject to sales tax. However, some necessities like food, clothing and medication are not taxable in some states. And sometimes states consider things like digital goods (eBooks, music, movies) and software-as-a-service (SaaS) taxable even though they can’t be touched or held.
Here’s how Illinois taxes the most commonly sales tax exempt items:
Are groceries taxable in Illinois?
Yes, but at a reduced state sales tax rate of 1%. Local areas, such as cities and counties, may also apply their sales tax rate to groceries.
Note: From July 1, 2022 to June 30, 2023 the 1% state sales tax on groceries has been temporarily suspended.
How to Collect Sales Tax on Intrastate Illinois Sales
A sale is considered “intrastate” if the buyer and seller are both located in Illinois, or if the buyer is in Illinois and the item ships from a location (a store, warehouse, etc.) in Illinois.
Illinois is an “origin-based” sales tax sourcing state. This means that if you make a sale originating in Illinois and the buyer’s ship-to address is also in Illinois you would charge the sales tax rate at the sale’s origination point.
Example: Your business is located in Naperville, Illinois and you make a sale to a buyer in Rockford, Illinois. You’d charge the buyer the sales tax rate at your Naperville location.
How to Collect Sales Tax on Interstate Illinois Sales
A sale is considered “interstate” if the item ships from outside Illinois and the seller isn’t otherwise “engaged in business” in the state.
For sales that don’t originate in Illinois, you’d charge the sales tax rate at your buyer’s location.
Example: Your business is located in Allentown, Pennsylvania but you have nexus in Illinois and you make a sale to a buyer in Champaign, Illinois. You’d charge the buyer the combined state and local Champaign sales tax rate.
Should you collect sales tax on shipping charges in Illinois?
Yes, shipping charges are subject to sales tax in Illinois.
How often will I be required to file and pay sales tax in Illinois?
The more tax liability you have, the more often you will pay sales tax. Most Illinois sales taxpayers are required to pay either monthly, quarterly or annually by the 20th day of the month following the end of the taxable period.
Any retailer who’s average monthly sales tax liability is $20,000 or more must pay “quarter-monthly payments.” These payments are due on the 7th, 15th, 22nd and last day of the same month.
Illinois sales tax due dates
If a sales tax due date falls on a weekend or holiday it is due the following business day.