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?

Plain-English summary

A taxpayer asked the Illinois Department of Revenue how to correctly calculate the sales tax rate on a sale made in Jacksonville, a home-rule municipality in Morgan County, Illinois. The state general merchandise rate was 6.25%, Morgan County imposed a 1.00% County School Facility Tax, and Jacksonville imposed a 0.75% local home-rule tax, for a combined 8.00% rate. The taxpayer listed four possible ways to calculate the tax and guessed that the correct method was simply adding all the individual rates together and applying that single combined rate to the sale amount.

The Department confirmed the taxpayer's guess was correct. If a sale is made in a jurisdiction that imposes a local retailers' occupation tax, that local jurisdiction's tax is incurred on the sale in addition to the state tax, citing 86 Ill. Adm. Code 270.115. The Department also pointed to 86 Ill. Adm. Code 130.310 and 130.311 for the state Retailers' Occupation Tax and Use Tax rates (6.25% and 1%, depending on the type of item sold), and noted that local rates vary by jurisdiction and can be looked up using the Department's Tax Rate Database and Tax Rate Finder tools on its website.

The Department's response walked through the Jacksonville example directly: the state rate (6.25%) plus the Morgan County School Facility Tax (1%) plus the Jacksonville home-rule tax (0.75%) add up to the total 8% rate charged on the sale — matching the taxpayer's proposed "method number 1" (add the individual rates, then apply the combined rate once to the sale amount).

What this means for you

Calculating combined sales tax in a home-rule area

If you sell goods in an Illinois home-rule municipality, you do not calculate state and local sales taxes as separate, sequential charges, and you do not apply each rate to every line item individually. Instead, add together all the applicable rates — the state rate, any county rate, and any home-rule municipal rate — into one combined percentage, and apply that single combined rate to the total amount of the sale.

Finding the correct combined rate for your location

Because local rates vary by jurisdiction and can change, the Department directs taxpayers to use its Tax Rate Database and Tax Rate Finder tools (available on the Department's website) to look up the correct combined rate for a specific address and time period, rather than relying on rates gathered from other sources.

Common questions

Do I apply the state tax rate and then separately apply the local tax rate on top of that, or add them together first?
Add them together first. The Department confirmed that the state rate, county rate, and home-rule municipal rate are each added together to form a single combined rate, which is then applied once to the amount of the sale.

Does every home-rule municipality in Illinois have the same local tax rate?
No. Local tax rates vary depending on the rate imposed by each local government. The Department directs taxpayers to its Tax Rate Database and Tax Rate Finder tools to find the applicable combined rate for a specific location.

Is this letter binding on the Department?
No. This is a General Information Letter (GIL), issued under 2 Ill. Adm. Code 1200.120, which directs taxpayers to relevant regulations and information but is not a statement of Department policy and is not binding on the Department.

Citations and references

• 86 Ill. Adm. Code 270.115 — local jurisdiction's retailers' occupation tax is incurred on a sale made within that jurisdiction
• 86 Ill. Adm. Code 130.310 and 130.311 — state Retailers' Occupation Tax and Use Tax rates (6.25% and 1%, depending on item type)
• 2 Ill. Adm. Code 1200.110 — procedures for requesting a binding Private Letter Ruling (PLR)
• 2 Ill. Adm. Code 1200.120 — General Information Letters (GILs) are non-binding and not a statement of Department policy

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0012-gil.pdf

Original ruling text

ST 17-0012-GIL 04/07/2017 LOCAL TAXES
If a sale is made in a jurisdiction that imposes a local retailers’ occupation tax,
that local jurisdiction’s tax will be incurred on that sale. See 86 Ill. Adm. Code
270.115. (This is a GIL.)
April 7, 2017
Dear Xxxxx:
This letter is in response to your letter dated March 14, 2017, in which you
requested information. The Department issues two types of letter rulings. Private Letter
Rulings (“PLRs”) are issued by the Department in response to specific taxpayer
inquiries concerning the application of a tax statute or rule to a particular fact situation.
A PLR is binding on the Department, but only as to the taxpayer who is the subject of
the request for ruling and only to the extent the facts recited in the PLR are correct and
complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General
Information Letter (“GIL”) is to direct taxpayers to Department regulations or other
sources of information regarding the topic about which they have inquired. A GIL is not
a statement of Department policy and is not binding on the Department. See 2 Ill. Adm.
Code 1200.120. You may access our website at www.tax.illinois.gov to review
regulations, letter rulings and other types of information relevant to your inquiry.
The nature of your inquiry and the information you have provided require that we
respond with a GIL. In your letter you have stated and made inquiry as follows:
I am looking for direction on the proper way to calculate sales tax at the
time of sale in Morgan County Illinois (home rule) where there is a state
sales tax rate of 6.25%, county sales tax rate of 1.00%, and city sales tax
rate of 0.75% for a 8.00% total tax rate.
It appears as though there may be several ways to calculate the sales tax:

1. Add the individual tax rates (6.25+1.00+0.75=8.00) and apply it
   to the amount of sale,
2. Add the municipal tax rates (1.00+0.75=1.75) and apply it the
   the amount of sale, plus apply the state tax rate (6.25) to the
   amount of sale, and add up the tax amounts.
3. Apply each tax rate individually to the amount of sale and add
   up the tax amounts.
4. Individually apply each tax rate ot [sic] every item sold, and add
   up the tax amounts.
   I assume that item #1 is the logical conclusion (tax rates are added and
   applied), but I could not find it in the sales tax or home rule information in
   the IDOR website.
   And, I assume that there are no “special
   circumstances” where a type of business might be directed to calculate
   sales tax differently than the general business population.

ST 17-0012-GIL
Page 2

Your response as to the correct way to calculate sales tax in a home rule
area will be appreciated. I have enclosed some examples to clarify my
question regarding the calculation.

DEPARTMENT’S RESPONSE:
The Retailers’ Occupation Tax rate and Use Tax rate imposed by the State of
Illinois are 6.25% and 1%, depending on the type of item being sold. See Sections
130.310 and 130.311. Unlike the state tax rates noted above, local tax rates vary
depending on the tax rate imposed by the local government in a particular jurisdiction.
For local tax rates, see the Department’s Tax Rate Database and the Tax Rate Finder
on the Department’s website at www.tax.illinois.gov. Once on the website, you will see
on the left hand side a box entitled “Quick Links”. At the bottom of that box is a link
entitled “Tax Rate Database”. Click on that link which will take you to a screen entitled
“Tax Rate Database”. In the middle of the screen click on the link entitled “Sales Tax”.
Toward the bottom of the middle of that screen you will see a link entitled “Tax Rate
Finder”. Click on that link which will take you to another screen. At the bottom of that
screen click the “Start” button on the bottom right of the screen. At the bottom of the
next screen, click on the “Continue” button. On the next screen, click on the “Accept”
button, which takes you to the “Search” screen. This screen permits you to find the
particular area you are interested in searching to find out the tax rates in that area for
specific months.
The State rate of tax on general merchandise is 6.25%. Morgan County imposes
an additional County School Facility Tax of 1%. Jacksonville imposes an additional
local Home Rule tax at the rate of .75%. As a result, the tax rate in Jacksonville for
general merchandise is 8%. Each of the rates are added together to create the total tax
rate as you suggest in method number 1 in your letter.
I hope this information is helpful. If you require additional information, please
visit our website at www.tax.illinois.gov or contact the Department’s Taxpayer
Information Division at (217) 782-3336.
Very truly yours,

Cara Bishop
Senior Counsel

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