Illinois Sales Tax Guide for SaaS and E-Commerce Businesses
2025-08-11
Illinois taxes most goods and software but exempts most services and digital goods. The state rate is 6.25%, with local taxes pushing combined rates up to 10.25% in Chicago and 11% in some other areas. Illinois adopted economic nexus in October 2018 following the Wayfair decision. Incorrect collection leads to penalties and interest.
Quick Reference
| Item | Details |
|---|---|
| State Tax Rate | 6.25% |
| Local Tax Range | 0.25% - 4.75% |
| Combined Rate Range | 6.25% - 11% (Chicago: 10.25%) |
| Economic Nexus | $100,000 OR 200+ transactions in previous 12 months |
| Physical Nexus | Any presence in Illinois |
| SaaS Taxable | No (exempt at state level) |
| Registration Portal | MyTax Illinois |
Nexus in Illinois
Physical nexus
Physical presence creates immediate collection obligations:
- Office, warehouse, inventory, or employees in Illinois
- Independent contractors or affiliates soliciting sales
- Trade show attendance or temporary pop-ups (with exceptions for limited attendance)
- Fulfillment by Amazon (FBA) inventory storage
Economic nexus
Effective October 1, 2018, register and collect when either condition is met in the previous 12 months (or preceding four quarters):
- Gross receipts from Illinois sales exceed $100,000
- 200 or more separate transactions into Illinois
Other nexus triggers
- Affiliate nexus: Having ties to Illinois businesses that help facilitate sales, with cumulative receipts exceeding $10,000 over four quarters
- Click-through nexus: Agreements with Illinois-based referrers generating over $10,000 in sales over four quarters
- Trade show nexus: Attending conventions/trade shows may create nexus unless all conditions are met:
- Solely engaging in trade show activities
- Attending no more than 2 Illinois trade shows per year
- Present no more than 8 days total per year
- Combined gross receipts under $10,000 per year
Register within 30 days of establishing nexus; begin collection immediately upon registration.
Registration and Filing
- Register online: Apply through MyTax Illinois portal. No registration fee required.
- Provide business details: Legal name, address, Federal EIN, business type, and projected sales.
- Receive Illinois Account ID: Used for collecting and remitting sales tax.
- Filing frequency: Assigned by Illinois Department of Revenue based on tax liability:
- Monthly: Businesses collecting $200+ in sales tax per month
- Quarterly: Businesses collecting $50-$200 per month
- Annually: Businesses collecting less than $50 per quarter
- Due dates: Returns and payments due on the 20th of the month following the period.
- Zero returns: Required when no sales tax is collected during the period.
- Electronic filing: Required for most businesses through MyTax Illinois portal.
Taxability of Goods and Services
Tangible personal property
Taxable unless specifically exempt. Key exemptions:
- Most unprepared food (taxed at reduced 1% rate)
- Prescription and non-prescription medications (1% rate)
- Medical appliances and devices (1% rate)
- Newspapers and magazines
- Gold bullion issued by qualifying governments
Digital goods and software
| Category | Illinois Taxability | Notes |
|---|---|---|
| Prewritten software (downloaded, disk, cloud, SaaS) | Taxable | Treated as tangible property at full rate |
| Custom software written exclusively for one client | Exempt | Must be separately stated and reasonable |
| Music, videos, e-books delivered electronically | Not taxable | Illinois doesn't classify digital content as tangible property |
| Digital downloads (games, apps) | Taxable | When prewritten software |
Services
Services are generally exempt unless specifically taxable. Taxable services include:
- Information services (database access, credit reporting) unless data is personal/individualized
- Amusements and entertainment
- Telecommunications services
- Some repair services
Implementation, training, and consulting tied to software remain exempt when separately invoiced.
Shipping and handling
Complex rules apply based on delivery options and product mix:
- Delivery charges included in sales price: Generally taxable if no pickup option
- Separately stated delivery charges: Exempt when seller offers free pickup option and selling price isn't affected by delivery
- Mixed shipments: When shipment contains both exempt and taxable goods, allocation rules apply
- Lump sum delivery charge: Not taxable if exempt items' selling price exceeds taxable items' selling price
SaaS
| Requirement | Detail |
|---|---|
| Tax status | State level: SaaS is NOT taxable in Illinois. Local level: May be taxable in some jurisdictions like Chicago |
| Sourcing | Destination-based for taxable transactions. Use purchaser location or billing address |
| Customizations | Separately stated custom development is exempt; subscription fee taxability varies by jurisdiction |
| Exempt purchasers | Accept valid exemption certificates from qualifying organizations |
| IaaS/PaaS | Raw computing power or storage is generally not taxed |
| Implementation | Training and consulting services are exempt when separately invoiced |
Important: Despite Illinois' historically complex stance on software taxation, the Illinois Department of Revenue has now stated that SaaS/cloud-based software is not subject to sales tax at the state level. However, local jurisdictions may still impose taxes. Consult current regulations or tax professionals for specific situations.
E-Commerce
Marketplace facilitator rule
Marketplaces (Amazon, Etsy, eBay, Walmart, Shopify Marketplace) must collect Illinois sales tax on facilitated transactions. You remain responsible for:
- Tracking gross Illinois sales for nexus determination
- Registering once nexus exists, even if marketplaces remit all tax
- Filing returns that report marketplace sales as "marketplace-collected"
Illinois sales tax rates by major cities
| City | Local Tax Rate | Total Tax Rate |
|---|---|---|
| Chicago | 4.0% | 10.25% |
| Aurora | 1.75% | 8.25% |
| Rockford | 2.25% | 8.75% |
| Joliet | 1.75% | 8.25% |
| Naperville | 1.5% | 8.0% |
| Springfield | 2.0% | 8.5% |
| Peoria | 2.0% | 8.5% |
| Elgin | 1.5% | 8.0% |
Rate determination:
- In-state sellers: Illinois is origin-based - use tax rate where your business is located
- Out-of-state sellers: Destination-based under "The Leveling the Playing Field for Illinois Retail Act" (effective January 1, 2021) - apply tax rate for customer's delivery address
Product specific rules
| Product | Tax status | Rate |
|---|---|---|
| Clothing/footwear | Taxable (no clothing exemption) | Full |
| Dietary supplements | Exempt as food | 1% |
| Groceries and food | Reduced rate | 1% |
| Prescription medications | Reduced rate | 1% |
| Physical software (game cartridges, boxed software) | Taxable | Full |
| Digital download of software | Taxable | Full |
| E-books, digital music, videos | Not taxable | 0% |
Sales Tax Holidays
Illinois does not currently offer regular sales tax holidays. Unlike many other states, Illinois has not implemented annual back-to-school or other recurring tax-free periods as of 2025.
Additional Compliance Information
Streamlined Sales Tax (SST)
Illinois is not a member of the Streamlined Sales and Use Tax Agreement (SSUTA). This means remote sellers cannot use the simplified registration system available in SST member states.
Multiple Location Registration
Illinois requires businesses to register every location from which products might ship to customers. If you ship from multiple Illinois locations, include all addresses when registering for your sales tax permit.
Annual Filing Option
Businesses with annual sales tax liability under $20,000 may be eligible to file paper Form ST-1 instead of electronic filing, though electronic filing through MyTax Illinois is recommended.
Extensions and Amendments
- Extensions: Request 30-day filing extensions using Form IL-505-B
- Amendments: File amended returns using Form ST-1-X within 3 years of original due date
- Zero returns: Required even when no sales tax was collected during the period
Exemptions and Certificates
Common exemptions
- Government agencies: Federal, state, and local government purchases
- Nonprofit organizations: Qualifying charitable, religious, and educational organizations
- Resale purchases: Items bought for resale with proper documentation
- Manufacturing equipment: Machinery used directly in production
- Agricultural products: Seeds, fertilizers, pesticides, and farm machinery
Exemption certificates
Sellers must collect and maintain valid exemption certificates to validate tax-exempt transactions:
- Form ST-587: For exempt organizations (nonprofits, government)
- Resale certificates: For items purchased for resale
- Form REG-1: General business registration form
Missing certificates can result in liability for uncollected tax plus penalties and interest.
Penalties and Interest
- Timely filing discount: 1.75% of tax paid or $5 per calendar year, whichever is greater
- Late filing penalties:
- 2% of tax due for payments 1-30 days late
- 5% of tax due for payments 31-60 days late
- 10% of tax due for payments 60+ days late
- Interest charges: Accrue on unpaid tax balances
- Operating without permit: Significant penalties for collecting tax without proper registration
- Negligence penalties: 5% to 25% of tax due for negligent underpayment
References
- Illinois Department of Revenue Sales Tax Guide - Complete sales tax information
- MyTax Illinois Portal - Registration, filing, and payment system
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