Understanding the Illinois state sales tax is important for both retailers and individual buyers. Everyone who makes a purchase or sells an item in Illinois is likely subject to this tax, though there are a few exceptions. Of particular importance is the fact that individuals who make a purchase that's not already taxed are individually responsible for filing the appropriate paperwork and paying this tax on their own.
Reviewing the state's sales taxes will give you a better understanding of the added cost that can come along with your regular purchases and sales. Take a look at the following sales taxes that apply to purchases made in Illinois.
Have a question about Sales Tax in Illinois?
How Sales Tax Works
Sales tax is charged in two ways. Occupation taxes are imposed on sellers. The seller is responsible for paying this tax directly to the government. Sellers cover this expense by collecting a use tax from the purchaser. In cases where the seller does not charge Illinois State Tax, the purchaser will assume this responsibility.
You must pay a tax directly to the department if you purchase an item in Illinois and do not pay sales taxes on it. To do so, you must file Form ST-44, Illinois Use Tax Return. If you owe less than $600, you must submit this return by April 15 of the year following the year when you made the purchase. If your tax liability for the year is more than $600, you must file the return and pay the sales tax by the last day of the month following the month when you made the purchase.
While the state of Illinois imposes certain minimums regarding sales taxes, each county may increase these taxes as they see fit. Therefore, it's best to look up the sales tax for the county you're in if you're running a business or handling a large sale in Illinois.
General Merchandise Sales Tax
Illinois's general merchandise tax rate is 6.25%. The general merchandise tax applies to most personal property that you can purchase, including:
- Soft drinks and candy.
- Food prepared for immediate consumption (as in a restaurant).
- Personal grooming and hygiene products.
- Computer software.
- Photo processing.
- Repair parts.
Sales Tax on Qualifying Food, Drugs, and Medical Appliances
Qualifying food, drugs, and medical appliances are taxed at a lower rate than general merchandise. Illinois imposes a 1% sales tax on these items, which include:
- Food that has not been prepared for immediate consumption, including most grocery store items but excluding alcoholic beverages, soft drinks, candy, and hot food items.
- Medicinal items including both prescription and nonprescription drugs.
- Medical appliances, both prescription and nonprescription, such as dentures, corrective glasses, contact lenses, and prostheses.
Three returns apply to the sale of qualifying food, drugs, and medical appliances. This includes a monthly return, quarterly return, and annual return. These are due by the 20th day of the month for the period immediately following that for which the return is filed. For example, annual returns are due Jan. 20 for the previous year.
Sales Tax for Items Required to Be Titled or Registered
Vehicles that must be licensed or registered include trailers, mobile homes, watercraft, aircraft, ATVs, and motor vehicles. The state sales tax for vehicles is 6.25%, though this does not account for local taxes, which may increase this amount.
Registered dealers who sell or lease items that must be titled or registered have to register with an agency of the Illinois state government. These retailers must file either:
- Form ST 556-LSE, Transaction Return for Leases.
- Form S-556, Sales Tax Transaction Return.
These forms are due within 20 days of the date of delivery.
Prepaid Sales Tax
A prepaid sales tax applies to motor fuel sold for resale to distributors and suppliers that are not licensed in Illinois. The retailer of this fuel pays the sales tax upfront and claims a credit for this on their sales tax returns. These prepaid sales tax rates change every six months.
Prepaid sales taxes must be filed on Form PST-1 Prepaid Sales Tax Return on the 20th day of the month following the month that you're filing for.
Online Sales Tax
On Jan. 1, 2020, Illinois began requiring online marketplaces like Amazon and eBay to collect and remit Illinois sales taxes. These sales taxes apply to individuals who sell products through these states any time said products are stored in Illinois. Other online retailers must collect Illinois sales taxes if they have more than 200 transactions or over $100,000 in sales in the state over the course of a year.
Starting in 2021, online sellers will have to collect sales tax based on the location of the buyer. The state will then distribute these taxes to the appropriate counties based on the location of the buyer as well. Retailers are permitted to work with certified service providers that calculate and collect the appropriate state taxes on behalf of the buyer. These companies are permitted to keep 1.75% of this tax revenue as compensation.
Buyers who purchase online items from an out-of-state retailer that does not collect Illinois sales tax are responsible for paying this tax themselves. The purchaser must file Form ST-44.
Sales Tax Exemptions
There are many transactions that are exempt from sales taxes in Illinois. This includes sales that are made to:
- The local, state, or federal government.
- Not-for-profit organizations that are exclusively educational, religious, or charitable.
- Out-of-state buyers.
Sales of certain products and personal property are exempt from taxes as well, such as:
- Machinery and equipment used primarily for agriculture, manufacturing, or assembling of personal property.
- Legal tender, gold bullion, and medallions issued by qualifying governments.
- Fuel for international flights.
Additional sales tax exemptions are defined in Illinois Administrative Code Section 130.120.
Navigating Illinois sales taxes can be complicated if you're in retail and handle a lot of transactions or you make a lot of online purchases that are not taxed in the state.
For assistance handling all your sales tax responsibilities, contact Pasquesi Sheppard, Accounts and Consultants. We can help you handle your tax obligations properly.