Illinois Sales Tax and Invoicing Rules for 2026

TL;DR: Illinois has a 6.25% state sales tax on general merchandise, with a reduced 1% rate on groceries, drugs, and medical appliances. Combined rates with local taxes can reach 11%+ in Chicago. Economic nexus threshold is $100,000 in sales OR 200 transactions.

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.