Illinois State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Illinois, with full citations and the original source on every page.
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Are non-combustible tobacco capsules used in a vaping device taxable 'tobacco products' under the Illinois Tobacco Products Tax Act?
No. The Illinois Department of Revenue ruled that a company's imported tobacco capsules, used in a vaping device that heats but never burns or combusts the tobacco, do not meet the statutory definitio…
Does a sandwich-shop chain owe Retailers' Occupation Tax on a separately stated delivery charge when customers can also pick up the same food in-store at the same price?
No. The Illinois Department of Revenue ruled that because the taxpayer's customers can always pick up their sandwiches, chips, and drinks in-store at the same price with no delivery charge, there is n…
How does Illinois source a nonresident self-employed consultant's income when the client is headquartered in Illinois but the work is mostly done elsewhere?
Illinois says the income is business income, not wages, so it is sourced under the state's services-sourcing rule rather than by counting workdays: because the consultant's client was a corporation wi…
How did Illinois's mid-2017 income tax rate increase (P.A. 100-22) affect 2017 tax computations, exemptions, the R&D credit, and estimated tax penalties?
Illinois explains that P.A. 100-22 raised the individual/trust/estate rate to 4.95% and the corporate rate to 7% effective July 1, 2017, so 2017 filers generally compute tax using a blended rate (a we…
Does a casual seller — an individual selling personal property, a company selling small items at auction, or an auction seller — owe Illinois sales or use tax on the transaction?
It depends on whether the seller is regularly in the business of selling that type of property. Illinois does not impose Retailers' Occupation Tax (and the buyer owes no matching Use Tax) on an isolat…
Does Illinois sales tax apply to a mobile app subscription and bundled distributor services sold by a multi-level-marketing company?
It depends on what is actually transferred: if the mobile app, dashboard, and personal-website bundle involve no transfer of tangible personal property (e.g., cloud-based access with nothing downloade…
Does Illinois E911 tax apply to SIP trunk telephone services, and will IDOR confirm the calculation?
IDOR declined to rule on the taxpayer's proposed E911 tax calculation for SIP trunk services, explaining that the Emergency Telephone Assistance Act (50 ILCS 750/) is administered by the Illinois Depa…
Are custom dental devices like anti-snoring mouthpieces and dental bars taxed at Illinois' reduced 1% medical appliance rate, and can dentists buy them for resale?
The Department said the custom dental devices described (a prescription anti-snoring/sleep apnea mouthpiece and a metal dental bar) would generally qualify as medical appliances taxed at Illinois' red…
If my laser tag business charges one price for a birthday party package that includes laser tag, pizza, soft drinks, and a party host, do I owe sales tax on the whole thing?
It depends on how you bill it. If you charge a single bundled price covering the laser tag, food, drinks, and party host, Illinois Retailers' Occupation Tax applies to the entire charge; if you separa…
If my business charges one price for admission plus food and drinks (like a birthday party package), does Illinois sales tax apply to the whole charge or just the food?
It depends on how you bill it: if you charge one single, undivided price covering admission, food, and drinks, Illinois Retailers' Occupation Tax applies to the entire charge, but if the food and soft…
Does shipping goods into Illinois to a third-party vendor for remanufacturing, without storing goods there, create Illinois corporate income tax nexus under Public Law 86-272?
Illinois would not issue a binding nexus determination because nexus is inherently fact-specific, but based on the facts described, the Department indicated the company's activities go beyond what Pub…
Is a novel e-cigarette-style device whose capsule contains granulated tobacco leaves a taxable 'tobacco product' under the Illinois Tobacco Products Tax Act?
Yes. The Department ruled that because the Act's definition of 'tobacco products' expressly includes 'granulated' tobacco and must be construed broadly, a capsule containing granulated tobacco leaves …
Does the manufacturing machinery and equipment sales/use tax exemption cover equipment, like cleanrooms, that starts out in research and development before being used in production?
It depends, and the Department declined to give a firm yes or no here. Machinery and equipment (including the taxpayer's cleanrooms) can qualify for Illinois's manufacturing machinery and equipment ex…
Do I owe Illinois sales tax when I buy an optional extended warranty or maintenance agreement separately from the product it covers?
No. When an optional extended warranty or maintenance agreement is sold separately from the tangible personal property it covers, the sale of that agreement itself is not a taxable transaction under I…
Do the materials a company buys to build a natural gas-fired power generation facility qualify for Illinois's Enterprise Zone building materials sales tax exemption?
Yes. The Illinois Department of Revenue ruled that the company's materials -- from turbines and boilers to buildings, piping, and structural steel -- qualify as "building materials to be incorporated …
Are fees for a paid membership add-on (offering delivery perks and item discounts) subject to Illinois Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax?
No. The Department ruled that because the membership itself does not transfer any tangible personal property to the customer, the fees for the paid add-on membership -- and for its free one-month tria…
Does butane-blending equipment that a pipeline/tank-storage company installs just before its truck loading rack qualify for Illinois's manufacturing machinery and equipment sales tax exemption?
It depends on where each piece of equipment sits relative to the production cycle. The Illinois Department of Revenue ruled that equipment used to sample, test, measure, and inject butane into the gas…
Does a nonprofit have to charge Illinois sales tax on admission tickets, food, merchandise, and hospitality sales at a fundraising event?
It depends on what is being sold: admission tickets alone are an exempt intangible, but food and beverages sold separately, clothing/programs/souvenirs, and catering to corporate hospitality tents are…
Does Illinois Retailers' Occupation Tax or Use Tax apply to a company's various cloud-based (SaaS) software products -- tax-preparation, bookkeeping, self-employed finance, professional tax-prep, and payroll offerings -- including their related free mobile apps, desktop conversion tools, and occasional downloadable components?
The core SaaS access to each of the five product lines is not taxable because it is delivered purely through the cloud with no software downloaded to the user's device. However, whenever the company D…
How does a taxpayer request a refund of an overpaid Illinois income tax credit that hasn't been fully applied?
The Department didn't decide whether the taxpayer was entitled to the specific refund; it pointed to the general rule instead. Under IITA Section 909, the Department may credit and must refund any bal…
What does Illinois say about sales/use tax nexus, motor vehicle leasing and short-term rentals, the interim-use/demonstrator exemption, and sales to exempt organizations?
This GIL doesn't answer a single yes/no question; it's the Department's response to a multi-state tax survey, declining to fill out the questionnaire but summarizing Illinois law on several sales-tax …
Does Illinois sales tax apply to software delivered by URL that customers can download and duplicate without limit?
Likely no exemption: the Department explained that a software license escapes Illinois Retailers' Occupation Tax only if it meets five specific criteria in 86 Ill. Adm. Code 130.1935(a)(1), and told t…
If my company still offers a pickup option (even a shrinking one), are our delivery charges tax-exempt, and would eliminating pickup entirely make delivery charges taxable?
As long as customers genuinely have the option to pick up the item without paying a delivery charge, the delivery charge is not part of the taxable selling price. If pickup is eliminated and delivery …
If I separately state equipment rental or lease charges from VoIP service charges on the bill, do I still owe Illinois Telecommunications Excise Tax on the equipment charges?
No, equipment rental or lease charges are excluded from the Illinois Telecommunications Excise Tax as long as they are disaggregated and separately stated from the telecommunications service charges i…
Does Illinois sales/use tax apply to computer software, including software as a service (SaaS)?
It depends on how the software is delivered: Illinois generally taxes sales of "canned" (prewritten) computer software as tangible personal property, but custom software and software-as-a-service arra…
Does an out-of-state online seller of snack bars owe Illinois sales or use tax, and at what rate, if its products are stocked in an Illinois warehouse?
It depends: the Department declined to give a binding nexus determination and instead explained the general rules. An out-of-state seller has no Illinois collection duty unless it has physical presenc…
Are breast pumps, nursing bras, and other breastfeeding supplies taxed at Illinois's reduced 1% rate for medical appliances?
Mostly no. The Department said the listed breastfeeding items (breast pumps and parts, shields, shells, nursing bras, lactation supplements/cookies) don't appear to directly substitute for a malfuncti…
Is machinery and equipment used primarily to harvest hay for sale exempt from Illinois Retailers' Occupation Tax and Use Tax as farm machinery and equipment?
Yes. Under 86 Ill. Adm. Code 130.305, machinery and equipment (new or used) that is used or leased primarily in production agriculture is exempt from Illinois Retailers' Occupation Tax and Use Tax, an…
Where did Illinois source local retailers' occupation tax for an industrial supplier's branch, remote-order, online, and affiliate sales?
Over-the-counter branch sales were sourced to the ordering branch. Specified phone, fax, email, eProcurement, special-branch, and affiliate sales were sourced to the Illinois headquarters after primar…
If I lease a motor vehicle under a true lease and then buy it before the lease ends, do I get credit against the purchase tax for the sales/use tax already paid on my lease payments?
No. Under a true lease, the lessor (not the lessee) owes Use Tax on its cost price of the vehicle, and lease receipts themselves are not taxed. When a lessee later buys the leased vehicle before the l…
Does the Cook County Sweetened Beverage Tax become part of the selling price used to calculate Illinois Retailers' Occupation Tax liability?
No. Because the Cook County Sweetened Beverage Tax is imposed on the consumer (like the Cook County Liquor Gallonage Tax), it is not part of the selling price of the beverage and must be excluded when…
Does having remote employees or independent contractors in Illinois create income tax or sales tax nexus?
The Department would not say. It explained that whether a taxpayer has nexus with Illinois is too fact-specific for a ruling, and instead pointed to its nexus regulation (Section 100.9720) and general…
Does a company create Illinois sales-tax nexus by having a resident employee, using independent-contractor transcriptionists who work from home, and occasionally sending employees onsite to customer locations?
The Department declined to make a specific nexus determination in this GIL, saying nexus is too fact-specific for a General Information Letter and is better handled by an auditor. Instead, it explaine…
When a construction contractor buys materials and permanently installs them into real property, who owes Illinois Use Tax, and can a subcontractor's out-of-state tax payment avoid double taxation down the sales chain?
The construction contractor (or subcontractor doing the installing) that permanently affixes tangible personal property to real estate is the 'end user' of that property and owes Illinois Use Tax on i…
Does the Illinois manufacturing machinery and equipment exemption cover the welding gases (argon, helium, and O2) a metal fabricator uses in its MIG/TIG welding process?
No. The Department of Revenue advised that gases generally are not exempt under the manufacturing machinery and equipment exemption, citing 86 Ill. Adm. Code 130.330(c). This corrected an earlier 2011…
When does an out-of-state seller that stores inventory in an Illinois marketplace warehouse have to register and collect Illinois sales or use tax?
It depends on nexus: if the out-of-state seller's inventory is held in Illinois at the time of sale (or is produced there), the seller is treated as an Illinois retailer that must register and collect…
Does an out-of-state company that sells downloaded software over the internet, with no Illinois office or employees, have to collect Illinois sales/use tax on those sales?
It depends on whether the seller has nexus with Illinois. Under the Quill two-prong test, a retailer must have physical presence in Illinois (such as an office, agent, representative, or repetitive de…
Can a municipality impose its own tax on gas distributors and on cigarette retailers, and who actually pays that tax?
Yes. Under 65 ILCS 5/8-11-2, a municipality of 500,000 or fewer people may tax businesses that distribute, supply, furnish, or sell gas for use within the city (not for resale) at up to 5% of gross re…
Could a short-term car-rental company sell its fleet to a related title-holding entity and lease it back without Retailers' Occupation Tax or Use Tax?
Yes under the rental-use exemptions, though not as an occasional sale. The rental company and title-holding entity had agreed before transfer that the vehicles would continue in short-term rentals sub…
Does a taxpayer with multiple related rental-property LLCs need to file a formal petition for alternative apportionment in order to apportion each property's income separately?
No. The Illinois Department of Revenue explained that if separate rental properties truly qualify as separate trades or businesses under Department Regulation 100.3010(b), each business's income is ap…
Does gambling income won and taxed in another state increase an Illinois resident's credit for taxes paid to other states under IITA Section 601(b)(3)?
No. The Illinois Department of Revenue explained that because gambling income of a nonresident is not allocated to Illinois under IITA Section 301(c)(2), that same gambling income would not be taxable…
Are Poise pads for bladder leakage covered by Illinois's sales-tax exemption for feminine hygiene products?
No. Illinois's Retailers' Occupation Tax exemption effective January 1, 2017 covers only menstrual pads, tampons, and menstrual cups. Poise pads are designed for bladder leakage, not menstruation, so …
When a sale happens in a home-rule area with state, county, and city sales taxes, do you add all the individual tax rates together to get the total rate charged on the sale?
Yes. The Illinois Department of Revenue confirmed that in a home-rule jurisdiction like Jacksonville (Morgan County), you simply add each applicable tax rate together — state (6.25%), county (1.00%), …
Does an out-of-state seller of a hardware device and a cloud-based software subscription have to collect Illinois sales tax, and does the Illinois customer owe use tax if it doesn't?
It depends on whether the out-of-state business has nexus with Illinois. If it is an 'Illinois Retailer' or a 'retailer maintaining a place of business in Illinois' (which can include an in-state agen…
When a subsidiary is sold out of an Illinois combined unitary group, does the federal consolidated-return limit on using the sold subsidiary's losses (Treas. Reg. 1.1502-11(b)) also cap how much of that subsidiary's Illinois net loss carryover the group can use?
No. Illinois follows the federal consolidated-return rules (including Treas. Reg. 1.1502-11(b) and 1.1502-32) to compute combined base income and stock basis on the sale itself, but Illinois's own reg…
Does Illinois Use Tax apply when someone brings a vehicle bought overseas into Illinois after living there as a nonresident?
It depends on residency: Illinois Use Tax does not apply to a vehicle acquired outside Illinois by a nonresident individual who used it outside Illinois for at least 3 months before bringing it into t…
Are vitamins, dietary supplements, and similar products taxed at Illinois's low 1% food/drug rate or the general 6.25% sales-tax rate?
Vitamins, food supplements, and meal-replacement drink mixes are generally taxed as food at Illinois's low 1% rate (plus local taxes), because they are consumed for human internal consumption. They ar…
When does an out-of-state seller have enough connection ('nexus') with Illinois to owe Retailers' Occupation Tax or to have to collect Use Tax from Illinois customers, and how does Illinois treat related issues like software, cloud computing, drop shipments, and short-term rental platforms?
Illinois could not give a simple yes/no answer to a multistate nexus survey because nexus determinations are too fact-specific for a General Information Letter. Instead, the Department outlined its ge…
Does providing cloud-based software (like software as a service, an API, or a remote access agent) trigger Illinois Retailers' Occupation, Use, or Service Occupation Tax, and can an Illinois-based automated call-center service create sales tax nexus for its out-of-state clients?
A provider of software as a service acts as a serviceman: if nothing tangible is transferred to the customer, the service generally is not subject to Retailers' Occupation, Use, Service Occupation, or…
Did a custom oral device that advances the jaw to keep a sleep-apnea patient's airway open qualify as an Illinois medical appliance?
Yes. Based on the described operation, IDOR ruled that the physician-prescribed, dentist-custom-fitted device directly substituted for or corrected a malfunctioning body function by moving the jaw for…
Does a German employer pension qualify for Illinois's income tax subtraction for retirement income?
No. The Illinois Department of Revenue concluded that a pension paid by a private German employer under Germany's Betriebsrentengesetz does not qualify for the Illinois retirement-income subtraction, …
Can a partnership use IITA Section 304(f) alternative apportionment (specific accounting) to change how business income is allocated among its nonresident partners under Section 305(a)?
No. The Illinois Department of Revenue concluded that Section 304(f) only lets a taxpayer petition for an alternative method of allocating and apportioning its own business income to Illinois when the…
When a motor vehicle is sold to a leasing company for a long-term lease (over one year), who owes Retailers' Occupation Tax or Use Tax, and does that include any tax amount the lessor passes through to the lessee?
The dealer that sells the vehicle to the leasing company owes Retailers' Occupation Tax, and the leasing company (as purchaser/user) owes Use Tax; the lessee owes neither tax directly. For leases long…
Could a de minimis pan-refurbishing serviceman buy glaze tax-free when it became part of customers' exempt commercial baking equipment?
Yes for properly documented industrial-baker customers. The glaze was cured into and became part of exempt baking pans used in manufacturing, so the serviceman could buy it tax-free from Illinois supp…
Was a separately purchased consumer-electronics extended warranty taxable when customers also had to buy it to use a device-upgrade program?
No. IDOR treated the separately priced extended warranty as an optional maintenance agreement, so its sale was not subject to Retailers' Occupation Tax even when purchase was required for upgrade-prog…
Were meals sold directly to county-jail inmates by a charitable educational organization exempt from Illinois sales tax?
No. IDOR said the sale would be exempt if the prison itself sold meals to its inmates, but the requesting charitable or educational organization -- not the prison -- planned to be the seller. Its dire…
How does Illinois tax a turnkey door-hanger marketing service that designs, prints, verifies, and distributes printed pieces?
IDOR did not give a transaction-specific yes-or-no answer; this nonbinding GIL supplied the serviceman framework. Tangible door hangers transferred with a service are taxed under one of four methods: …
What corrections did Illinois make to a private sales-tax scorecard covering business inputs, local taxes, cloud software, credits, registration, and guidance reliance?
IDOR would not approve the private survey, but corrected several points: it supplied manufacturing-exemption citations; noted cable service was generally outside telecommunications excise tax; said el…
Are disability benefits a city pays to injured employees under the Public Employee Disability Act (PEDA) subject to Illinois income tax withholding?
It depends on federal tax treatment: PEDA benefits are included in Illinois base income, and Illinois withholding is required, only if the same payments must be included in the employee's federal adju…
Did Illinois's $100 penalty apply when a company failed to file ST-556 or ST-556-LSE for a zero-tax motor-vehicle sale for resale?
It depended on whether the seller made any retail sales of titled property. A company selling titled vehicles exclusively for resale did not have to file transaction returns and incurred no $100 penal…
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These are official tax letter rulings and advisory opinions issued by Illinois's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.