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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When a serviceman buys a specimen-collection kit from an out-of-state, unregistered supplier and uses it (rather than transferring it to the customer) to provide a non-taxable service in Illinois, does the serviceman owe Illinois Use Tax on the kit?
Yes. When a serviceman purchases tangible personal property at retail from an unregistered, out-of-state supplier and uses or consumes that property in Illinois rather than transferring it to service …
Does a company that sells molded pulp packaging (like protective boxes and cartons) to businesses who use it to package and ship their own products for sale owe Illinois Retailers' Occupation Tax on those packaging sales?
No tax is owed on the container sale itself, if the purchaser gives the seller a Certificate of Resale. Under 86 Ill. Adm. Code 130.2070, sellers of containers, wrapping, and packing materials to purc…
Are invoices for a licensed software subscription's continued maintenance/access, and for additional software users, subject to Illinois Retailers' Occupation (sales) Tax?
It depends on the facts, which the Department could not resolve in a GIL. Generally, canned (prewritten) software is taxable, but a software license that meets all five criteria in 86 Ill. Adm. Code 1…
When a business sells a combined ticket for a dinner-and-entertainment event (like a murder mystery dinner), does it owe Illinois Retailers' Occupation Tax on the food, and does that change if the caterer already charged tax on the food it sold to the business?
Caterers and sellers of meals owe Illinois Retailers' Occupation Tax on their full gross receipts from food sales, with no deduction for service or overhead costs. If a business buys catered food and …
How does Illinois tax motor vehicle sales with respect to trade-in credits, private-party (non-retail) sales, and sales to nonresidents from states without a reciprocal tax exemption?
Illinois lets retailers deduct the value of a like-kind trade-in from the taxable selling price of a motor vehicle, with no dollar cap (a $10,000 cap under P.A. 101-31 applied only from Jan. 1, 2020 t…
When a company sells its entire business division, is the goodwill gain apportioned to Illinois, or can the company get alternative apportionment instead?
Neither. The Illinois Department of Revenue held that gain from selling an entire business segment, including the goodwill portion, must be excluded ENTIRELY from the sales factor (both numerator and …
How does Illinois answer a national state-tax survey's questions on marketplace facilitator thresholds, food-delivery sourcing, digital products, qui tam sales-tax lawsuits, car-sharing/short-term-rental platforms, and the sales/use tax statute of limitations?
Illinois counts a marketplace facilitator's and its sellers' Illinois sales/transactions TOGETHER (not separately) against the $100,000/200-transaction threshold; a seller using an exclusive marketpla…
Can a taxpayer keep using an alternative apportionment method the Department approved in an earlier ruling when it later sells the rights to its remaining contingent payments?
Yes. Illinois renewed the taxpayer's 2019 alternative apportionment ruling, permitting it to source interest income and proceeds from selling the rights to future 'Earn-Out' payments using the apporti…
Does Illinois sales or use tax apply when a contractor sells and plants trees and tree shelters for a landowner under a government-sponsored conservation program?
Yes, generally. There is no Illinois sales tax exemption for tangible personal property used for conservation purposes, so trees and tree shelters sold to a customer are taxable unless a different exe…
What did Illinois tell a nationwide state-tax survey about its corporate income tax rules on bonus depreciation and net-operating-loss carryforwards?
This is not a ruling on one taxpayer's facts. It's the Illinois Department of Revenue's answers to an outside publisher's annual, roughly 90-question survey of every state's corporate income tax rules…
Does a car-sharing company's base rental charge, membership fees, and various add-on fees get taxed under the Automobile Renting Tax, the sales/use tax, or neither?
The base rental charge for renting a car for a year or less is subject to the Automobile Renting Occupation and Use Tax (ART), not sales tax. Plain membership fees (with no included drive time) are ge…
Does transferring titled trucks from LLC members to the LLC itself qualify for the flat $15 Vehicle Use Tax rate as a business reorganization, instead of the regular vehicle-value-based tax?
The Department could not say. Based on the limited facts provided, Illinois could not determine whether transferring trucks from individual LLC members to the LLC qualified for the flat $15 Vehicle Us…
After I returned a used vehicle to the dealership and canceled my loan, can the Illinois Department of Revenue force the dealer to file a claim for credit to get back the sales tax I paid, so I can get my money back from the dealer?
No. The Department has no authority to compel a motor vehicle dealer to file a claim for credit for sales tax paid on a returned vehicle. Getting the dealer to file that claim (and to refund you the t…
Is a watercraft purchase from a licensed Illinois dealer exempt from Illinois sales tax if the watercraft itself is exempt from state titling and registration?
No. Buying a watercraft at retail from an Illinois dealer is subject to Illinois Retailers' Occupation Tax/Use Tax (commonly called sales tax) regardless of whether the watercraft is exempt from Illin…
What Illinois sales tax rate applies to home-baked goods (like flour-based baked goods vs. fudge or no-bake cookies) sold for pickup, delivery, or shipping, and does the rate change when selling at farmers' markets or other venues?
It depends on whether the item is "food," "candy," or a "soft drink" under 86 Ill. Adm. Code 130.310 -- not on the sales venue. Food for human consumption to be eaten off-premises (not prepared for im…
Does an out-of-state ESCO that resells electric power to Illinois commercial and industrial customers, without delivering or distributing the power itself, owe Illinois sales tax, electricity excise tax, electricity distribution tax, invested capital tax, or the Energy Assistance Charge?
No sales tax applies because electricity delivered by wire is excluded from the Retailers' Occupation Tax and Use Tax Acts. The Electricity Excise Tax, the Public Utilities Revenue Act's electricity d…
Does Illinois's $100,000 economic-nexus threshold for sales tax also apply to corporate income tax, and does leasing a warehouse forfeit PL 86-272 protection?
IDOR would not determine whether any of the three specific companies had Illinois nexus, calling that question 'extremely fact specific.' But it confirmed two general rules: Illinois's $100,000/200-tr…
Does a personal chef who prepares and delivers custom meals for private clients qualify for a special 'de minimis serviceman' exemption from Illinois Retailers' Occupation (sales) Tax, since the chef already pays sales tax on the raw ingredients?
No special exemption applies. The Department explained that custom-made items substantially similar to stock or standard items (like tailor-made clothing) remain subject to Retailers' Occupation Tax, …
How is Illinois Service Occupation Tax calculated when a business (serviceman) transfers tangible personal property—like advertising materials—as part of providing a service, including when a secondary serviceman/subcontractor is involved and when materials are shipped outside Illinois?
Illinois taxes servicemen (businesses that sell services) on the tangible personal property they transfer as part of that service, not under regular sales tax but under the separate Service Occupation…
Does Illinois sales tax apply when a nonresident buys a vehicle from an Illinois dealer and has it titled in another state?
It depends on reciprocity and where the vehicle actually went. Illinois exempts a vehicle sale to a nonresident from Retailers' Occupation Tax only if the buyer's titling state gives Illinois resident…
Must an auto glass repair and replacement company include its over-the-counter retail and wholesale glass sales when calculating its 35% 'de minimis' cost ratio, and how must it collect tax on its repair and replacement services?
Retail and wholesale sales of glass are excluded from the cost-ratio calculation used to determine 'de minimis' serviceman status; only the cost of materials transferred as part of a repair or replace…
When a customer returns merchandise, how should an Illinois retailer report the refunded sales tax on Form ST-1/ST-2, and can the amended return show a negative number?
The retailer must refund the sales tax it collected to the customer and may then deduct the corresponding gross receipts on the return for the period the refund was made. But sellers cannot file a ret…
Does an outdoor walking tour company owe Illinois sales/use tax when its tour price includes stops for food and drinks at third-party restaurants and bars?
It depends on whether tangible personal property (food or drinks) is transferred as part of the sale. A walking tour by itself, with no food or drink included, is a nontaxable service. But if the tour…
Is the gain from selling a non-unitary limited-partnership interest taxed by Illinois, or allocated to the seller's home state?
Conditionally, yes: IDOR concluded the gain would be allocated to the taxpayer's out-of-state commercial domicile, not apportioned to Illinois, but only because it took the taxpayer's own representati…
When an online retailer opens a large in-state fulfillment center and headquarters, is it required to collect that city's local (home-rule) Retailers' Occupation Tax on its Illinois internet sales, instead of just the state use tax?
Yes, for sales tied to that facility. The Department ruled that once the company opens its headquarters and fulfillment center in the city, it is engaged in three or more of the five 'primary selling …
Can annualizing income let a taxpayer avoid Illinois's $250,000 standard-exemption cutoff, and are Form IL-2210's annualization percentages correct?
No to both. The standard exemption is disallowed once a taxpayer's full-year federal adjusted gross income exceeds $250,000 (or $500,000 for joint filers) under IITA Section 204(g) — that threshold is…
Does Illinois tax a resident partner's full guaranteed payment even if it was earned from real estate sales in other states?
Yes. Illinois taxes the entire guaranteed payment because the partner is an Illinois resident; where the underlying real-estate sales activity happened does not matter. A credit for tax paid to other …
What are Illinois's official answers to a comprehensive national multistate survey covering sales tax nexus, economic nexus thresholds, remote-seller/service-provider activities, refund claims, voluntary disclosure agreements, and local sales taxes?
Illinois bases sales/use tax nexus on BOTH physical and economic presence, with the economic threshold set at $100,000 or more in cumulative Illinois gross receipts OR 200 or more separate Illinois tr…
Does a capital financing lease of qualified data center equipment, treated as a conditional sale, qualify for Illinois' sales-tax data center exemption, and does the answer change depending on when the data center itself became qualified?
Illinois could not give a specific ruling in a GIL, but explained that a capital financing lease treated as a conditional sale is taxed like a sale (full Retailers' Occupation Tax on the payment strea…
Does an Illinois online classified-ads website have to collect Retailers' Occupation (sales) Tax on sales of digital 'credit packs' that customers use to publish, highlight, or promote listings?
No. The Department ruled that because purchasers of the digital credit packs receive no tangible personal property -- no inventory is shipped and nothing physical changes hands -- the sales are not su…
Does a large membrane (fabric/steel-truss) structure built onto a factory in an Illinois enterprise zone qualify for the Enterprise Zone building materials exemption from Retailers' Occupation Tax?
Yes. The Department ruled that the membrane structure -- a steel-truss, fabric-clad building anchored into a poured concrete foundation and equipped with fire suppression, electrical, and utility infr…
Do nonresident beneficiaries owe Illinois income tax on annuity proceeds distributed to them through an Illinois estate?
No, for the nonresident beneficiaries: annuity proceeds paid to an Illinois estate (because the annuity had no named beneficiary) and then distributed to nonresident children are unspecified income un…
When a corporation spins off a subsidiary in a tax-free IRC Section 368(a)(1)(D) reorganization, must it make the bonus-depreciation addition and subtraction modifications on the transferred assets for that tax year?
Yes. Illinois follows the federal treatment of the reorganization, so in the tax year the transfer and spin-off occur, the corporation must add back the aggregate bonus-depreciation subtraction modifi…
Can a trust beneficiary assign his share of trust income to his own single-member LLC for Illinois tax reporting purposes?
IDOR did not decide this. Whether a trust beneficiary can assign his beneficial interest to his single-member LLC is a threshold question of trust law (does the trust instrument permit it), which the …
When a finance company buys heavy trucks and trailers from a dealership to lease to customers under a TRAC (terminal rent adjustment clause) lease, does the dealership charge sales tax on that purchase, and who owes tax on the lease payments?
The dealership owes Retailers' Occupation Tax on its sale of the truck or trailer to the leasing company. If the arrangement is a true lease (no guaranteed/nominal buyout), the lessor is treated as th…
Can an insurance company that changed its mind get Illinois's permission to switch how it sources reinsurance premiums for apportionment purposes?
Yes. The Illinois Department of Revenue granted the taxpayer's request to change its IITA Section 304(b)(2) election for sourcing reinsurance premiums, moving from Method B (each ceding company's in-s…
What is Illinois General Information Letter IT 22-0003-GIL, and what does it say about corporate income tax nexus?
It isn't a ruling on anyone's tax situation -- it's the Illinois Department of Revenue's completed answers to a private publisher's annual '2022 Survey of State Tax Departments,' covering how Illinois…
Does a landlord who leases shared suite space to two alcoholic-liquor distributors have to register with the Department as a 'warehouseman' and obtain a Certificate of Registration?
Yes, in the situation described. Under Article VII-A of the Liquor Control Act of 1934, anyone who stores alcoholic liquors (including wine) for compensation — even indirectly, such as through rent fr…
Can a corporation that had its federal wage deduction disallowed because it claimed the Employee Retention Credit take an offsetting subtraction on its Illinois income tax return?
Yes. Corporations whose federal wage deduction was disallowed under IRC Section 280C(a) because they claimed the CARES Act Employee Retention Credit may subtract that disallowed amount under IITA Sect…
When an out-of-state business leases identification signs (tangible personal property) to Illinois car dealers under a true lease, who owes Illinois sales/use tax, and does it matter whether the signs are treated as real property or as tangible personal property?
The lessor, not the dealer-lessee, owes the tax. Under a true lease, Illinois treats the lessor as the end user of the tangible personal property being leased, so the lessor owes Use Tax on its own co…
Does selling corn oil as an off-road-use-only performance fuel for tractor pulls require a Motor Fuel Tax license, and is it subject to motor fuel tax?
It depends on whether the corn oil is blended with diesel or another fuel. Plain corn oil resold as-is is not "motor fuel" and isn't subject to the Motor Fuel Tax Law. But if it is blended with diesel…
When a peer-to-peer car-sharing platform lets private "Hosts" rent out their own vehicles to "Guests," who owes Illinois's Automobile Renting Tax -- the platform or the Host -- and does that change once the platform's rental volume crosses certain thresholds?
The platform (the "Car Rental Facilitation Company") is treated as a marketplace facilitator under the Automobile Renting Occupation and Use Tax Act, the same way an online marketplace is a marketplac…
Can a company use alternative apportionment to include a huge one-time asset-sale gain in its Illinois sales factor after that gain was excluded under the incidental-or-occasional-sale rule?
No, not on the facts given here. The Department held that alternative apportionment was not appropriate merely because gross receipts from an incidental or occasional sale of business assets were excl…
Does an out-of-state company that has an Illinois employee and buys personalized debit/prepaid cards from printers owe Illinois Retailers' Occupation, Use, or Service Occupation Tax on those cards, depending on where the printer ships them and whether they are resold, given away, or destroyed unfinished?
It depends on where the printer ships the finished cards. Because the company has an Illinois employee, it is an out-of-state "serviceman maintaining a place of business" in Illinois, and the Departme…
Does an outsourced veterinary pharmacy business owe Service Occupation Tax or Retailers' Occupation Tax on the products it supplies through participating veterinary hospitals to pet owners, and who is responsible for remitting that tax?
The Department could not give a definitive answer because the facts were unclear, but it explained the framework: if the pharmacy company sells to veterinary hospitals at wholesale and the hospitals r…
Can a corporation use alternative apportionment just because its foreign royalty income is excluded from the Illinois sales factor under the 50% test?
No. The Department denied the petition because royalties that fail IITA Section 304(a)(3)(B-2)'s 50%-of-gross-receipts test are properly excluded from the sales factor, and that exclusion alone -- wit…
Does a company that dehydrates, powders, and encapsulates a customer's own product into vitamin capsules owe Service Occupation Tax, and if so, how is the tax base calculated?
Yes. The Department concluded the company is acting as a "serviceman" under the Service Occupation Tax Act and owes tax on the tangible personal property (the capsules and packaging) transferred incid…
Is software that guides an entire steel-building fabrication process from design through production — replacing printed blueprints — exempt from Illinois sales and use tax as 'software used to operate exempt manufacturing machinery and equipment'?
The Department did not decide whether this particular fabrication-guidance software qualifies, because a GIL cannot make a taxability determination on specific facts. Instead, it laid out the framewor…
Does an out-of-state digital advertising company owe Illinois Use Tax or Service Occupation Tax on payments it receives from Illinois-based customers for serving mobile ads that lead to app installs?
It depends on whether tangible personal property (including taxable computer software) actually changes hands. The Department explained that Illinois does not treat viewing, downloading, or streaming …
Does an Illinois school lose its sales-tax exemption on cafeteria meals if it outsources cafeteria operations to an outside food service company instead of using its own employees?
No. The Department confirmed that a school's cafeteria sales remain exempt from Retailers' Occupation Tax under 86 Ill. Adm. Code 130.2005(b)(4)(A) even when an outside food service company operates t…
When a company installs cell-tower/telecom transmission equipment (wiring, cabling, and related materials) onto real property under time-and-materials or lump-sum contracts, is the company treated as a construction contractor subject to Use Tax, or as a retailer that must charge sales tax, and does using or acting as a subcontractor change the answer?
A firm that permanently affixes tangible personal property (such as telecom transmission equipment, wiring, and cabling) to real property is a construction contractor, not a retailer, and owes Use Tax…
Does a SaaS company owe Illinois sales, use, or service occupation tax on a free connector applet and on subscription fees for its cloud-based service?
No. The Department ruled the company owes no Illinois Use Tax on the free applet it lets customers download from out-of-state servers, and no Retailers' Occupation Tax, Use Tax, or Service Occupation …
If a former employee moved out of Illinois before receiving a back-pay settlement for wages earned while she worked in Illinois, does the employer still have to withhold Illinois income tax from that payment?
Yes. Because the back wages were earned while the employee was working in Illinois, they are allocable to Illinois and subject to Illinois withholding, regardless of where she lived when the settlemen…
Can a German government pension be subtracted from Illinois taxable income the same way a Canadian pension can?
It depends on the type of German pension. The Illinois Department of Revenue could not give a definitive answer without knowing the specific kind of 'government pension,' but explained that a German p…
Are retroactive 'catch-up' retiree healthcare subsidy payments from a City's Illinois Pension Code annuity and benefit funds exempt from Illinois income tax?
Yes, if included in federal adjusted gross income. Distributions from Illinois Pension Code annuity and benefit funds -- including retroactive 'bring current' healthcare subsidy payments -- qualify fo…
Does a non-resident Illinois taxpayer have to prorate (reduce) their standard exemption when some of their income comes from outside Illinois?
Yes. Under IITA Section 204(a), if a taxpayer's total base income is greater than their Illinois income, the taxpayer must prorate their standard exemption to account for income from sources outside o…
What Illinois sales tax rate applies to a whole-food-based powdered shake mix?
It appears to qualify for the lower 1% state tax rate on food (plus applicable local taxes) rather than the higher 6.25% rate for candy or soft drinks, because the product is a powder intended to be m…
Does a software vendor's perpetual and term software license agreements qualify for Illinois' exemption from Retailers' Occupation Tax and Use Tax as a non-taxable software license rather than a taxable retail sale?
The Department did not rule on the specific licenses because it no longer issues private letter rulings on whether a particular canned-software license meets the exemption test — it considers 86 Ill. …
Does Illinois cap the trade-in credit on vehicle sales and use tax, and how does the state tax leased, rental, and out-of-state vehicle purchases?
Illinois charges 6.25% state sales/use tax on vehicles (plus applicable local tax), and as of this 2021 letter capped the trade-in credit at $10,000 per first-division vehicle — but the Department fla…
Does a permanently anchored racking system installed in a building qualify for Illinois's Enterprise Zone building materials sales tax exemption?
It depends on whether the racking has actually become part of the real estate. The Department explained that the Enterprise Zone building materials exemption only covers building materials incorporate…
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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.