Illinois State Tax Rulings

Starting January 1, 2025, does Illinois still charge state sales tax on leases already subject to Chicago's Personal Property Lease Transaction Tax?

No. Once Illinois' new lease tax takes effect January 1, 2025, gross receipts from a lease already subject to Chicago's Personal Property Lease Transaction Tax are exempt from the State and Department…

My Illinois trust's only income is interest from a nonqualified annuity, distributed entirely to a nonresident beneficiary -- does the trust have to withhold Illinois pass-through tax on that distribution?

No -- because the annuity income is nonbusiness income that Illinois allocates away from the state for a nonresident beneficiary, the trust has no IITA Section 709.5(a) withholding obligation on it; i…

Does Illinois sales tax apply to locally installed software licenses, and what has to be in the license agreement for the sale to be exempt?

Generally yes. Illinois taxes sales or licenses of canned (prewritten) computer software unless the license agreement meets all five criteria in 86 Ill. Adm. Code 130.1935(a)(1) — including a written …

My client, a farmer, died in the same year they claimed 100% federal bonus depreciation on a farm building -- can the estate take Illinois's offsetting Line 18 subtraction on Form IL-4562 to reverse that addition?

No -- the Department concluded that a taxpayer's death does not count as a 'transfer or disposition' of the property under IITA Section 203(a)(2)(AA), so the Line 18 subtraction that would otherwise r…

If an online travel company (a re-renter) books my hotel rooms, do I still owe Hotel Operators' Occupation Tax, or can I treat the sale to the re-renter as exempt?

You still owe the tax. A hotel operator who rents rooms to a re-renter of hotel rooms (such as an online travel company) still incurs Hotel Operators' Occupation Tax on the gross rental receipts it ge…

When is a sale exempt from Illinois sales tax as an interstate-commerce sale or a sale for resale, and who can seek a refund if tax was charged anyway?

A sale is exempt as interstate commerce only if the seller (not the buyer) ships the goods out of Illinois for good, or if a narrow nonresident-vehicle exception applies with proper proof of non-resid…

Does Illinois charge sales or use tax on a video game's in-app purchases, like in-game currency and game extras?

Yes, for the in-app purchases, but not for the free download. Illinois treats a free download of a video game (software downloaded from an out-of-state server) as untaxed, but once a player buys in-ga…

I placed a $100,000 passenger automobile in service in 2023 and claimed 80% federal bonus depreciation, which exceeded the IRC Section 280F annual limit -- did I calculate the Illinois addition and subtraction modifications correctly?

The Department confirmed the core mechanics: because the taxpayer's 80% bonus depreciation exceeded the IRC Section 280F dollar cap ($20,200) for the auto's first year, no Illinois subtraction modific…

Does Illinois sales tax apply at the full rate or the reduced 1% rate to dental fluoride varnish and similar medical devices sold to professionals?

It depends on how the product is classified. Illinois taxes qualifying drugs, medicines, and medical appliances at a reduced 1% rate, but the Department's GIL did not decide whether this particular fl…

How does Illinois tax the sale of motor vehicles, including trade-ins, private-party sales, and sales to nonresidents?

Illinois taxes most motor vehicle sales under the Retailers' Occupation (sales) Tax or Use Tax, and generally allows a trade-in credit against the taxable price when a like-kind vehicle is traded in. …

How does Illinois tax a construction contractor who also manufactures the modular components it installs into a building?

The contractor owes Illinois Use Tax as the end user of the materials, and when the contractor is also the manufacturer of the modular components it installs, the tax base is only what it paid for the…

What does Illinois General Information Letter ST 24-0031-GIL say about how the state's sales, use, and hotel taxes apply to prepayments, refunds, marketplace nexus, tax appeals, and specific products and services?

This isn't a ruling on one issue -- it's the Illinois Department of Revenue's response to an annual multistate tax survey, touching on several separate sales/use and hotel tax topics: businesses owing…

Does Illinois charge sales tax on software accessed only through the cloud, like a SaaS subscription or an app membership?

No. Illinois does not tax computer software delivered through a cloud-based system where the software is never downloaded to the customer's device and is only accessed remotely, including software-as-…

We provide cloud-based data-processing services that translate and relay medical lab test results to physician practices and patients (some of whom can also download free mobile apps), and we've recently crossed Illinois's $100,000 economic-nexus threshold -- do any of our fees trigger Illinois Retailers' Occupation Tax, Use Tax, Service Occupation Tax, Service Use Tax, or the Telecommunications Excise Tax, and do we have to register and collect?

No on all counts, on these specific facts. The Department ruled the company's Monthly Data Processing Fees and Initial Setup Fees are not taxable because the company acts as a "serviceman" providing t…

I petitioned Illinois to use separate accounting instead of the standard apportionment formula, but I didn't file the petition until after my return was due -- can the Department still consider it?

No -- the Department denied this petition purely on timeliness grounds and never reached the merits of whether separate accounting was actually a fairer apportionment method. The taxpayer's petition f…

Is a subscription to a health/fitness coaching app (with SaaS-style content, trackers, and a downloadable app) subject to Illinois sales tax?

No, not on the facts this taxpayer described. The Department ruled that the subscription fees for the taxpayer's Member Services (personalized health content, coaching, and in-app trackers) and Person…

My company ships products to third-party distributor warehouses that then reship them elsewhere -- for Illinois sales-factor purposes, do I source the sale to where I deliver the goods, or to wherever the distributor eventually sends them?

You source the sale to where delivery to the distributor's warehouse terminates, not to any later destination the distributor chooses. If the third-party distributor warehouse (or a new hub-style ware…

Does Illinois sales tax apply to on-premises enterprise software sold under a license agreement, and how does that differ from cloud-based (SaaS) software?

It depends on the license terms. Illinois generally taxes sales of "canned" (prewritten) computer software as tangible personal property, but a software license is exempt from Retailers' Occupation Ta…

Does Illinois sales tax, service occupation tax, or telecommunications excise tax apply to cloud-based practice-management software sold to healthcare providers?

The Department did not issue a yes/no ruling on this taxpayer's specific facts (that requires a binding Private Letter Ruling), but it confirmed the general framework: canned computer software is taxa…

Is equipment used to manufacture prototype products under a federal contract exempt from Illinois sales and use tax?

It depends on what happens to the finished product. Machinery and equipment used primarily to manufacture tangible personal property that will be sold or leased at wholesale or retail is exempt from I…

If an out-of-state vendor already charged sales tax on equipment shipped to Illinois, does the buyer still owe Illinois Use Tax on it?

Usually not in full. To prevent double taxation, Illinois gives a credit for tax already properly paid to another state on the same purchase: if that other-state tax was at a rate of 6.25% or greater,…

If our out-of-state manufactured products are already sold to customers outside Illinois but pass through a third-party distribution center in Illinois for a few days to be consolidated onto other trucks, do those sales count as Illinois sales for our sales-factor apportionment?

No -- the Department ruled that a brief, functional stop at a third-party-operated Illinois distribution center, used only to consolidate and reroute already-sold shipments to their predetermined out-…

Are radiopharmaceuticals and contrast media used for diagnostic or therapeutic purposes taxed at Illinois's reduced 1% drug rate or the general 6.25% rate?

Radiopharmaceuticals and contrast media used for diagnostic purposes have no medicinal qualities and do not qualify for the reduced 1% rate, so they're taxed at the general 6.25% merchandise rate. The…

A commercial tax-guide publisher's annual survey request shows up in Illinois's letter-rulings archive under a normal ruling number -- does it actually contain any Illinois tax guidance?

No -- this isn't guidance to a taxpayer at all. It's the Department's brief GIL-format reply to a commercial publisher's (the Multistate Corporate Tax Guide's) annual survey of state tax law, and the …

My company's foreign brand-licensing royalties are excluded from my Illinois sales factor because they're under 50% of gross receipts -- can I get alternative apportionment to include them anyway, since they're a big, high-margin chunk of our income?

No -- the Department denied the petition. Illinois's rule excluding intangible-property royalties from the sales factor unless they exceed 50% of gross receipts is not inherently distortive just becau…

Does Illinois sales tax or marketplace facilitator law apply to a call-answering/call-center service that takes food orders but never collects payment?

No. The Illinois Department of Revenue concluded that Retailers' Occupation Tax and Use Tax do not apply to sales of service, and that a call-answering service for restaurants does not meet the defini…

Does Illinois sales tax apply to a self-publishing platform's charge for online book-drafting access and to the printed book it produces?

The Department did not decide the taxpayer's specific facts in a binding way (that's what a GIL is), but it laid out the general framework: true SaaS access that is never downloaded is not subject to …

What Illinois sales tax rate applies to a human/veterinary product marketed as a probiotic 'medical food,' and how does the state tell a 1% low-rate medicine or food apart from a 6.25% general-merchandise sale?

It depends on the label. Illinois taxes drugs and medicines — including nonprescription products whose label makes a medicinal claim (that it cures, treats, or relieves a disease, illness, injury, or …

Does Illinois sales, use, or service occupation tax apply to a company's domain name registration, web hosting, and creation of emails and SSL certificates?

No. The Illinois Department of Revenue explained that a company's domain name registration, web hosting, and creation of emails and SSL certificates qualify as custom, intangible computer property (no…

Does a company that cross-docks and delivers already-owned tobacco product to a retailer's stores -- without buying, selling, or holding title to it -- need an Illinois Tobacco Products Tax Act license?

Only persons who meet the Tobacco Products Tax Act's definition of "distributor" or "retailer" must get an Illinois Department of Revenue license under 35 ILCS 143/10-20 or 10-21; the Department's GIL…

I'm an Illinois resident claiming the credit for taxes paid to other states on guaranteed payments allocated out of state -- do I really have to allocate my whole HSA deduction to those other states too, shrinking my credit?

My client's irrevocable trust was formed in Illinois, but the trustees and beneficiary have since moved out of state, and now both Illinois and the other state claim the trust as a resident -- can the trust still claim Illinois's credit for taxes paid to other states even though it's a dual resident?

Yes -- the Department confirmed that an Electing Small Business Trust (ESBT) that qualifies as an Illinois resident trust (because its grantor was domiciled in Illinois when the trust became irrevocab…

Does a construction contractor owe Illinois Use Tax or Retailers' Occupation Tax on materials, like solar panels, that get permanently installed into real estate?

Construction contractors are treated as end users of the materials they permanently affix to real estate, so they owe Use Tax on the cost price of those materials rather than collecting sales tax from…

Does Illinois sales tax apply to a mandatory service charge or tip added to a restaurant bill?

Mandatory gratuity or service charges that are separately stated on the bill and actually paid over to the service employees as tips (or a substitute for tips) are not subject to Illinois sales tax. B…

Does Illinois sales tax apply to a photographer's digital photo files and an optional custom-made photo album sold along with them?

Electronically delivering digital photo files by themselves is generally not subject to Illinois Retailers' Occupation or Use Tax, because transferring data electronically isn't a transfer of tangible…

Is a Managed Services Provider's resale of subscription software licenses (like Microsoft Office 365) and remote tech support to Illinois customers subject to Illinois sales or use tax?

It depends on how the software is delivered and licensed. Cloud-based software that a customer only accesses remotely and never downloads is not taxable. A license of canned (prewritten) software that…

What Illinois sales tax rate applies to a powdered drink-mix product marketed as a whole food?

Illinois taxes most retail sales at 6.25%, but food for human consumption to be eaten off the premises where it's sold is taxed at a lower 1% rate unless it's an excluded category (alcohol, cannabis-i…

Do physician-prescribed graduated compression stockings qualify for Illinois's reduced 1% sales tax rate on medical appliances, instead of the general 6.25% rate?

It appears they may qualify for the reduced 1% rate, because graduated compression stockings differ from ordinary support hose in that their graduated compression aids blood flow where leg vein valves…

Once an out-of-state remote retailer drops below Illinois's $100,000/200-transaction economic nexus thresholds and stops collecting tax, does that trailing nexus obligation ever come back, and how often must the retailer check?

Yes, it can come back, and the retailer must keep checking every quarter. Once a remote retailer stops being required to remit Illinois state and local retailers' occupation tax, it must re-test its t…

My client took a Bright Start 529 distribution to pay for his other daughter's private secondary school tuition -- does he have to add that back as income on his Illinois return?

Yes. The Department concluded that private secondary school tuition is not a 'qualified expense' under the Illinois 529 rules (which cover higher-education-related costs, not K-12 tuition), so any amo…

Does a medical device company's implant system and companion surgical tool for treating obstructive sleep apnea qualify for Illinois's reduced 1% sales tax rate as a 'medical appliance,' and how do local taxes apply?

A medical appliance -- an item that directly substitutes for a malfunctioning part of the human body -- is taxed at Illinois's lower 1% state rate instead of the general 6.25% rate, and local taxes (i…

Does an out-of-state mail order pharmacy that fulfills prescription orders through a third-party partner's Illinois warehouse have to register and collect Illinois Service Use Tax or Service Occupation Tax?

Yes, potentially -- an out-of-state serviceman (including a mail order pharmacy) that meets the Service Use Tax Act's definition of "serviceman maintaining a place of business in this State" (35 ILCS …

My partnership does most of its business outside Illinois but co-owns another partnership that operates entirely inside Illinois, and using the standard single-sales-factor formula makes our Illinois apportionment look much bigger than our actual Illinois activity -- can we use separate accounting instead?

No -- the Department denied this petition because the taxpayer never submitted evidence about the market for its goods or services, or any evidence showing the standard single-sales-factor formula fai…

When a jewelry retailer lets a customer trade in old jewelry toward a new purchase, can the retailer exclude the value of that trade-in from the "gross receipts" it owes Illinois sales tax on?

Yes, but only if the traded-in item is of "like kind and character" as the item being sold -- for example, a customer trading in a ring toward a bracelet purchase. When that test is met, the value of …

How does a retailer calculate Retailers' Occupation Tax when a customer pays with a discount coupon, a manufacturer's coupon, a radio-station or third-party gift certificate, or a buy-one-get-one-free deal?

Tax is based on gross receipts actually received by the retailer, including any reimbursement it gets for a discount -- an unreimbursed discount (a coupon or card the retailer isn't paid back for) red…

Can a trucking company get a Motor Fuel Tax refund for undyed diesel used to run a refrigeration unit that shares one fuel tank with the truck's engine?

No. The Illinois Department of Revenue concluded a company may not claim a Motor Fuel Tax refund for fuel used by a refrigeration unit that shares a common fuel supply tank with the truck's engine; Se…

Can a licensed Illinois cigarette distributor affix Illinois tax stamps to unstamped cigarettes that were procured by a commonly-owned affiliate directly from a permitted out-of-state manufacturer?

Yes. The Department ruled that because the distributor (COMPANY) and its procurement affiliate (PROCUREMENT AFFILIATE) are both licensed distributors under common ownership through the same parent, CO…

Can a pastor use his church's tax-exempt (E-number) status to buy furniture for himself, tax-free, for the parsonage he lives in?

Yes, if it's done correctly: the purchase must be paid for with the church's own funds or a credit card billed directly to the church (not the pastor personally), the retailer must be given a copy of …

Do gates permanently set in concrete at a construction site inside an Illinois enterprise zone qualify for the enterprise zone building materials sales tax exemption?

It depends on whether the gates are permanently affixed to the real estate -- the Department's GIL says the items 'may qualify' if they are permanently incorporated into the realty (applying the same …

Is a foreign-based company's subscription charge for a cloud-delivered health-coaching app (with a web portal, downloadable App, meal plans, workout videos, and personal coaching) subject to Illinois Retailers' Occupation, Use, or Service Occupation Tax?

The Department did not give a yes-or-no answer. It explained that electronically transferred information/data is not taxable tangible personal property, but canned (prewritten) computer software is ta…

Does Illinois's Telecommunications Excise Tax apply to dark fiber leased under an Indefeasible Right of Use (IRU) or to a non-indefeasible right to use fiber strands between two locations?

No. Dark fiber -- fiber-optic strands with no light or signal running through them -- carries no messages or information, so it doesn't meet the statutory definition of "telecommunications" in 35 ILCS…

Is the ink and solvent a steel-framing manufacturer mixes and applies inline to identify and trace parts during roll forming exempt from Illinois sales/use tax as manufacturing machinery and equipment, or as production related tangible personal property?

The Department did not say yes or no for this taxpayer's specific ink and solvent -- as a GIL, it only explained the manufacturing machinery and equipment (MM&E) exemption framework under 35 ILCS 120/…

Is a canned (prewritten) computer software license, and the technical support/updates that go with it, subject to Illinois Retailers' Occupation (sales) Tax?

It depends on whether the license meets all five criteria in 86 Ill. Adm. Code 130.1935(a)(1); if it does, neither the software transfer nor later software updates are taxable, but an end user license…

If an out-of-state fuel company runs its sales office out of state but has trucks that pick up and deliver motor fuel to Illinois customers, does it owe Illinois county/municipal motor fuel tax and local sales tax on those Illinois deliveries?

There's no automatic yes-or-no answer -- Illinois local retailers' occupation tax and county/municipal motor fuel tax liability turns on a fact-specific test (86 Ill. Adm. Code 270.115) that weighs wh…

Is selling corn oil and other non-petroleum fuel additives for use in farm tractors during off-road tractor pulls taxable under Illinois's Motor Fuel Tax Law, and does the seller need to register under that law?

It depends on how the product is sold: corn oil or other non-petroleum additives are not "motor fuel" under the Motor Fuel Tax Law merely because they're purchased and resold, but if they are sold (al…

Is a mobile app that lets truck drivers buy discounted fuel from partner fuel stops -- without itself selling, holding, or delivering the fuel -- a 'marketplace facilitator' that must collect and remit Illinois sales and use tax?

The Department could not say, on a GIL, without seeing the actual contracts between the app company and the fuel stops -- it explained the Retailers' Occupation Tax and marketplace-facilitator framewo…

Does a company that operates a mobile app connecting truck drivers to discounted fuel at partner fuel stops -- without itself buying, selling, or distributing the fuel -- owe Illinois Motor Fuel Tax or need a motor fuel license?

The Department could not say, because it could not determine from the letter alone the actual contractual relationship between the app company and the fuel stops; based on the limited facts given, the…

Should our online retail business collect Illinois sales tax based on our customer's location (destination sourcing) or based on where our selling activities occur (origin sourcing), especially after two merging internet retailers combine their offices, warehouse, and servers?

It depends on the facts, and this GIL does not decide the company's specific scenarios -- the Department explains that where a retailer owes LOCAL retailers' occupation tax (county, home-rule municipa…

Does the sales-and-use-tax exemption for tangible personal property used in building or running a data center cover solar-array components (racking, panels, inverters, combiners, switchgear) installed as a secondary use on data-center property?

Illinois exempts qualified tangible personal property used in the construction or operation of a data center that holds a Department of Commerce and Economic Opportunity certificate of exemption, but …

Does an IT company that resells Microsoft Office 365 and other SaaS (software-as-a-service) products to its customers have to charge Illinois sales tax on those sales?

It depends on facts the Department said this particular letter didn't supply: canned (prewritten) software is generally taxable in Illinois regardless of delivery method, but a license meeting all fiv…