Illinois Sales Tax and Invoicing Rules for 2026

State sales tax rate

Illinois levies a 6.25% state sales tax on general merchandise. Qualifying food, drugs, and medical appliances are taxed at a reduced state rate of 1%.

Local jurisdictions add their own layers — Chicago's combined rate on general merchandise reaches 10.25%, and some areas with additional special-purpose taxes exceed 11%.

The state uses a complex structure with multiple taxing bodies: the state Retailers' Occupation Tax, Municipal Retailers' Occupation Tax, county taxes, and special district taxes. Illinois applies origin-based sourcing for Illinois-based sellers, but destination-based for out-of-state remote sellers.

Nexus rules

Physical nexus is triggered by offices, employees, inventory, or regular solicitation activities in Illinois.

Economic nexus applies if you have $100,000 or more in gross receipts from sales to Illinois buyers OR 200 or more separate transactions in the preceding 12 months. Either threshold triggers nexus.

Marketplace facilitators are required to collect and remit tax. Illinois also has a click-through nexus provision targeting sellers using Illinois-based referral affiliates generating over $10,000 in sales.

Invoice requirements

The Illinois Department of Revenue requires sellers to maintain complete transaction records. Invoices should include:

• Seller's name, address, and tax registration number (IBT number)
• Date of transaction
• Buyer information
• Description of goods or services
• Sale price
• Applicable tax rate (noting if the reduced 1% rate applies)
• Tax amount and total

Items taxed at different rates should be separately itemized on the invoice so the correct rate is applied to each. Keep records for at least four years. Exempt sales require a completed Certificate of Resale (CRT-61) or applicable exemption certificate.

Exemptions and special cases

Food for human consumption (not prepared or heated) is taxed at the reduced 1% rate rather than fully exempt. Prescription and nonprescription medicines also qualify for the 1% rate.

Manufacturing machinery and equipment is exempt. Farm equipment and inputs are exempt. Certain pollution control equipment qualifies for exemption.

SaaS and cloud computing are generally not taxable in Illinois — the state taxes tangible personal property and considers most cloud services to be nontaxable services. However, downloaded canned software is taxable.

Clothing is fully taxable at the standard 6.25% rate.

Filing frequency and deadlines

The Department of Revenue assigns filing frequency:

• Monthly — annual liability above $20,000, with two quarterly estimated payments also required
• Quarterly — liability between $1,000 and $20,000
• Annually — liability under $1,000

Monthly returns are due the 20th of the following month. Quarterly returns are due April 20, July 20, October 20, and January 20. Annual returns are due January 20.

Illinois offers a 1.75% vendor discount on timely-filed returns for the Retailers' Occupation Tax.

Penalties for non-compliance

Late filing incurs a penalty of the greater of $250 or 2% of tax due per month (up to 25%). Interest accrues at a rate determined by the Department.

Failure to register or collect tax can result in back-assessments, liens, and potential criminal prosecution for willful evasion. Illinois actively audits businesses, with a focus on e-commerce and marketplace transactions.

FAQ

Why are some items taxed at 1% instead of 6.25% in Illinois?

Illinois applies a reduced 1% state rate to qualifying food (groceries, not restaurant meals), drugs, and medical appliances. Local taxes may still apply on top. Your invoice should reflect the correct rate for each line item — mixing rates on a single invoice is common.

Does Illinois tax SaaS?

Generally no. Illinois does not tax cloud-based software or SaaS. However, pre-written (canned) software delivered electronically or on tangible media is taxable. Custom software developed for a specific client is typically not taxable.

What is the vendor discount and how do I claim it?

Illinois allows sellers to retain 1.75% of the Retailers' Occupation Tax they collect as compensation for timely filing. The discount is automatically calculated when you file your return on time. Late filers lose the discount entirely.

Check the combined rate for any Illinois address with InvoiceQuickly's tax rate lookup.

Step-by-step: register and start collecting in Illinois

1. Confirm nexus — physical presence in IL (Chicago warehouse, suburban office) creates immediate nexus. Economic nexus: $100,000 in cumulative gross receipts OR 200 separate transactions to IL buyers in the prior 12 months.
2. Register via MyTax Illinois — apply for a Certificate of Registration (sales tax) through the IL Department of Revenue's online portal. Processing is 5–7 business days at no fee.
3. Configure 6.25% state + local 0.25%–4.75% — IL state rate is 6.25%, plus regional and local taxes. Chicago combined is 10.25% (one of the highest in the U.S.). Cook County, RTA, and city-specific taxes stack. Configure ZIP-based rates.
4. Capture CRT-61 exemption certificates — Form CRT-61 (Certificate of Resale) for resellers; ST-587 for manufacturing; specific forms for charitable, governmental, and educational exemptions. Hold for 3.5 years.
5. File via MyTax Illinois — most sellers file monthly. Returns due the 20th of the month following the period. IL allows a vendor's discount of 1.75% of tax liability up to $1,000 per filing for timely filers.

Real Illinois compliance situations

• A Chicago-based retailer charges 10.25% combined (6.25% state + 1.25% Cook County + 1.25% RTA + 1.5% Chicago + 0% other) — the highest urban rate in the country. They configured ZIP-aware logic so suburbs in Cook County get 8% and City of Chicago gets 10.25%.
• A Naperville-based SaaS provider confirmed Illinois does NOT tax SaaS or remotely-accessed software (a meaningful exemption). However, software delivered via download or media is taxable. They configure invoices to clearly distinguish service-based access from delivery-based products.
• A Springfield e-commerce store ships statewide. The Sangamon County rate (8.5%) differs from Macon County (8.5%) and McLean County (7.75%). Wrong-rate-by-ZIP has been their #1 IL audit concern; they refresh rate tables monthly via the IL DOR Tax Rate Finder.

More Illinois FAQs

Is SaaS taxable in Illinois? No — Illinois does not currently tax SaaS or cloud-based software access. Pre-written software downloaded or delivered on physical media is taxable. The state has considered SaaS taxation legislation periodically; verify status if the issue is material to your business.

Why is Chicago's combined rate so high? Chicago stacks City of Chicago tax (1.25%), Cook County (1.75%), Regional Transportation Authority (1.0%), and Metropolitan Pier and Exposition Authority (0%) on top of the 6.25% state rate. The 10.25% total is the highest major-city rate in the U.S.

Are groceries taxed in Illinois? Groceries are taxed at a reduced 1% state rate (the regular 6.25% state rate doesn't apply, but local rates may apply). Prepared food sold for immediate consumption is taxed at the full combined rate.

What's Illinois' use tax for online purchases? Use tax is 6.25% on out-of-state purchases of taxable goods where the seller didn't collect IL sales tax. Self-report on form ST-44 or with your annual income tax return for purchases under $600.