Illinois Sales Tax Guide: Complete 2025 Rates & Requirements

In Illinois, understanding sales tax regulations is critical for businesses trying to stay compliant. The state’s tax rules can be particularly complex, making it challenging for companies to navigate. 

Whether you’re a growing enterprise or a small startup, this guide from Commenda will provide everything you need to know about Illinois sales tax in 2025. From updated rates to exemptions and filing requirements, we’ll cover the key details to help you stay compliant and avoid expensive mistakes.

What Is the Sales Tax Rate in Illinois?

Illinois has a statewide sales tax rate of 6.25%, but it’s important to remember that this rate can be adjusted by local taxes. Many cities and counties in Illinois impose additional local taxes, which can increase the overall rate significantly.

For example, Chicago has a combined state and local rate of 10.25%, making it one of the highest in the country. 

Illinois’s sales tax system applies to the sale of tangible personal property and certain services, but some exemptions and exceptions exist. As a business owner it is essential for you to be aware of these nuances to avoid overpaying or underpaying taxes. 

Illinois Sales Tax Overview

The Illinois Department of Revenue (IDOR) is responsible for administering the state’s sales tax laws. The state taxes the sale of goods and specific services like utilities, certain digital products, and specific types of food. It’s crucial to understand the categories of taxable and non-taxable goods and services in Illinois, especially with frequent updates. 

Further, according to  the states’ sales tax rates are 6.25% for general merchandise and 1% for certain foods, drugs, and medical appliances. (source: Illinois Department of Revenue)

When Do Businesses Need to Collect Illinois Sales Tax?

Businesses in Illinois must collect sales tax if they have established a “nexus” in the state. Nexus refers to a business’s connection to Illinois, which legally obligates the business to collect and remit sales tax. There are two main types of nexus to consider:

1. Physical Nexus

If your business has a physical presence in Illinois, such as an office, employees, inventory, or warehouse, then you are required to collect sales tax on sales made within the state.

2. Economic Nexus

Illinois also follows the economic nexus rule, which means that businesses without a physical presence in the state may still be required to collect sales tax if they meet certain thresholds. Specifically, if a business makes $100,000 in gross sales or conducts 200 separate transactions in Illinois within a 12-month period, it triggers an obligation to collect Illinois sales tax. 

For example, if you run an online business and make $120,000 in sales to Illinois residents, or if you process more than 200 transactions, you will need to collect sales tax, even if your business operates outside of Illinois.

(source: Sales tax Institute) 

Failure to Collect Illinois Sales Tax

Non-compliance with Illinois sales tax laws can result in severe penalties. Businesses must act as intermediaries between the state and their customers, ensuring that they collect the appropriate tax and remit it to the state in a timely manner. Failing to meet these obligations can lead to the following:

• Penalties for Late Filing: Late payments can incur penalties of 2% and 10% of the unpaid tax for 1 to 30 days and more than 31 days respectively. (source: Illinois Department of Revenue)
• Interest Charges: Presently the interest rate for underpayment is 7%. (source: Illinois Department of Revenue)
• Audits: The IDOR may audit businesses that fail to comply with sales tax regulations, potentially leading to heavy fines or back taxes. (source: Illinois Department of Revenue)

Sales Tax Considerations for Out-of-State Sellers

Businesses outside Illinois need to be aware of the state’s economic nexus rules. If your business meets the sales or transaction thresholds in Illinois, you are required to collect Illinois sales tax on sales to Illinois customers. This applies to any business, including those operating online or through platforms like Amazon, eBay, and Etsy.

For example: If an e-commerce business sells $200,000 worth of goods to Illinois residents in 2025 or completes more than 200 transactions with Illinois customers, it will trigger economic nexus. As a result, the business must collect and remit Illinois sales tax.

Businesses selling through Fulfillment by Amazon (FBA) should also consider the impact of having inventory stored in Illinois. Storing goods in the state may create a physical nexus, triggering sales tax obligations. For more clarity, Commenda’s sales tax automation software can help streamline this process and ensure your business remains compliant.

Registering for an Illinois Seller’s Permit

As a business owner you need to register for a sales tax permit, before you can commence collecting the sales tax in Illinois. Here’s a step-wise guide to help you get started:

1. Obtain an Employer Identification Number (EIN)

First, you need a federal Employer Identification Number (EIN). You can obtain one from the IRS in case you don’t already have it.

2. Register with the Illinois Department of Revenue

Next, register your business with the IDOR online. You’ll need to provide key details about your business, including your business name, type, and location.

3. Complete the Sales Tax Registration

Once registered with the IDOR, fill out the Sales and Use Tax Registration Application to officially begin your registration process.

4. Submit the Application & Pay Fees

There may be minor fees associated with registering, depending on your business structure. After you submit your application and it’s approved, you will receive your Illinois Seller’s Permit, allowing you to collect sales tax.

How to Collect Sales Tax in Illinois

The state of Illinois follows a destination-based sales tax system. This means the tax rate depends on the location where the product is being delivered, not where the seller is based.

For instance, if you ship an item to a customer in Chicago, you must ensure that you charge the Chicago combined sales tax rate for the said transaction. (source: Illinois Department of Revenue)

Tax-Exempt Customers in Illinois

Some customers and transactions are exempt from Illinois sales tax, including nonprofit organizations, government agencies, and certain resale transactions. If you deal with exempt customers, make sure you have the proper exemption certificates to keep accurate records. These documents are essential to prove that you were not required to collect sales tax on the transaction.

Filing Sales Tax Returns in Illinois

Illinois businesses must file sales tax returns to remit the taxes they’ve collected. The filing frequency depends on the amount of tax liability your business has. Here’s a breakdown of the filing schedule:

Filing Frequency

(source: Illinois Department of Revenue)

How to File Illinois Sales Tax Returns

1. Determine Your Filing Frequency

Illinois businesses are required to file sales tax returns either monthly, quarterly, or annually. The state determines your filing frequency based on your sales volume and compliance history.

2. File Online

The Illinois Department of Revenue provides an online portal where you can file your sales tax returns. It’s important to keep accurate records of all sales and taxes collected to avoid mistakes when filing.

3. Submit Payment

When submitting your return, make sure to pay the tax due promptly to avoid any penalties and interest.

Using Sales Tax Automation Tools

The complexity of managing Illinois sales tax can be overwhelming, particularly with varying local rates and frequent filing deadlines. Fortunately, Commenda’s sales tax automation software simplifies the process for you.

With Commenda’s tools, businesses can easily calculate, file, and remit Illinois sales tax, saving time and reducing the risk of errors. Further, automating sales tax ensures compliance and helps avoid costly penalties, allowing you to focus on other priorities.

Illinois Sales Tax Compliance Checklist

It’s essential that as a business owner you stay compliant with Illinois’s sales tax laws. To help you navigate the process, here’s a checklist:

1. Begin by registering for a seller’s permit with the Illinois Department of Revenue. This is the first step to ensuring you’re legally authorized to collect sales tax.
2. Keep track of both physical and economic nexus to make sure your business meets the necessary sales or transaction thresholds. It’s crucial to know when you’re required to collect tax.
3. Use accurate sales tax calculators to ensure you’re applying the correct rates based on each customer’s location. Rates can vary, so this step is key to avoiding mistakes.
4. Make it a priority to file your returns on time. Missing deadlines can lead to penalties, and no one wants that hassle!
5. Finally, always keep thorough records for tax-exempt sales. Retaining the necessary exemption certificates ensures you’re prepared in case of an audit.

Preparing for Illinois Sales Tax Audits and Appeals

Illinois conducts audits to ensure businesses comply with state sales tax laws. Proper preparation is key to surviving an audit. Following are some steps you can adopt to ensure a smooth audit process:

1. Organize your records: Keep all your sales invoices, tax returns, receipts, and exemption documentation in one place. Being organized will save you time and stress when it’s time to review or file.
2. Reconcile your income: Double-check that the income you’ve reported matches your financial records. This ensures your tax filings are accurate and helps avoid discrepancies down the line.
3. Validate your exemptions: Make sure you have valid documentation for any exemptions, whether it’s for resale or non-profit status. Proper documentation is key to ensuring you’re compliant and prepared if you’re ever audited.
4. During the Audit

Cooperate fully with the auditor, and if you disagree with the findings, you can appeal the audit within 30 days.

Illinois Sales Tax Rates by City

Being aware of local tax rates throughout Illinois is essential for maintaining compliance. Below is a list of tax rates for a few cities across the state for reference.

(source: Sales Tax Handbook)

A solid understanding of Illinois’s sales tax laws, paired with the right tools, is key to keeping your business compliant and steering clear of expensive penalties. Commenda can help streamline your sales tax management through automated solutions that minimize errors and ensure you meet all filing deadlines with ease.

Schedule a demo today and let us simplify the process for you!

FAQs

What triggers sales tax nexus in Illinois?

How do I register for an Illinois seller’s permit?

What happens if I don’t collect sales tax in Illinois?