I sell hemp-derived CBD oils, edibles, beverages, and topical creams -- what Illinois sales tax rate applies to them?

Plain-English summary

A new Illinois retailer of hemp-derived CBD products asked the Department of Revenue what sales tax rate applies to CBD items sold in the taxpayer's store -- including topical creams and ointments, and ingested products such as oils, edibles, and beverages. The products were all derived from hemp with less than 0.3% THC, consistent with state and federal law. The taxpayer had already looked at 86 Ill. Adm. Code 130.311 but found nothing addressing CBD or hemp products specifically.

The Department's response starts with the general rate structure under 86 Ill. Adm. Code 130.310. "Food" -- defined as any solid, liquid, powder, or item intended by the seller primarily for human internal consumption -- is taxed at a low rate of 1% (plus local taxes) when it's consumed off the premises where it's sold, as long as it isn't alcohol, a soft drink, or food the vendor prepared for immediate consumption. Anything that doesn't meet that "food" definition, or that is prepared by the vendor for immediate consumption, is taxed at the higher general rate of 6.25% (plus local taxes).

Separately, under 86 Ill. Adm. Code 130.311, a "medicine or drug" is any pill, powder, potion, salve, or other preparation for human use that purports on its label to have medicinal qualities. Items meeting that definition -- for example, vitamins, food supplements, or meal-replacement drink mixes that actually make medicinal claims on their labels -- are taxed at the same low rate as drugs. But the Department noted that most such products don't make medicinal label claims, in which case they aren't "drugs" at all and instead fall to be assessed under the food rules (typically at the 1% rate, since they're usually intended for internal consumption).

Applying this to CBD specifically, the Department said it was not aware that CBD product labels typically make medicinal claims, and on the facts presented it was unable to determine whether the taxpayer's particular CBD products should be classified as medicines or drugs. What the Department did resolve: if the CBD products are sold primarily for internal human consumption, they qualify as "food" and are taxed at the low 1% rate (plus local taxes) -- regardless of whether they separately happen to carry medicinal label claims.

It's worth being precise about what that leaves open. The Department's affirmative answer is framed around products sold "primarily for internal human consumption" -- language that fits the ingested oils, edibles, and beverages the taxpayer described well, but doesn't map as cleanly onto topical creams and ointments, which are applied externally rather than consumed internally. The GIL does not explicitly say what rate applies to a topical CBD product that isn't ingested and doesn't make medicinal label claims; it simply doesn't address that scenario head-on.

What this means for you

If you sell ingestible CBD products (oils, edibles, beverages)

If your CBD oils, edibles, or beverages are marketed and sold primarily for internal human consumption -- and you're not preparing them for immediate on-site consumption or selling them as soft drinks or alcohol -- they should qualify as "food" under 86 Ill. Adm. Code 130.310 and be taxed at the low 1% state rate plus applicable local taxes.

If your product labels make (or don't make) medicinal claims

Check your labeling. If a CBD product's label purports to have medicinal qualities, it may instead qualify as a "medicine or drug" under 86 Ill. Adm. Code 130.311 -- which is also taxed at the low rate, so the practical tax outcome is often the same either way. If the label makes no medicinal claims (as the Department believed was typical for CBD products at the time), the product isn't a "drug," and its tax treatment falls back to the food rules.

If you sell topical CBD creams or ointments

Be aware this GIL does not clearly resolve the tax rate for topical products. Because topicals aren't consumed internally, they may not fit the "food" definition the Department relied on to give its low-rate answer. Without a clearer ruling on point, consider requesting your own guidance from the Department or consulting a tax professional before assuming topicals qualify for the same 1% rate as ingestible CBD products.

Common questions

Q: What sales tax rate applies to CBD oils, edibles, and beverages sold in Illinois?
A: If they're sold primarily for internal human consumption, they qualify as "food" under 86 Ill. Adm. Code 130.310 and are taxed at the low rate of 1% plus applicable local taxes.

Q: Does a CBD topical cream get the same 1% rate?
A: The GIL doesn't say so directly. Its low-rate conclusion rests on products being sold "primarily for internal human consumption," which describes ingested products, not topicals applied to the skin. The ruling does not resolve how topical CBD creams or ointments should be classified.

Q: Are CBD products taxed as "drugs" instead of "food"?
A: Only if their labels purport to have medicinal qualities, per 86 Ill. Adm. Code 130.311. The Department said it wasn't aware that CBD labels typically make such claims and couldn't determine, on the facts given, whether these particular products should be classified as medicines or drugs.

Q: If a CBD product doesn't qualify as food or a drug, what rate applies?
A: Products that don't meet the "food" definition (and aren't prepared by the vendor for immediate consumption) or the "medicine or drug" definition are taxed at the higher general Illinois sales tax rate of 6.25% plus applicable local taxes.

Citations and references

Statutes and regulations cited:

• 86 Ill. Adm. Code 130.310 (defines "food" and sets the 1% low rate for food consumed off-premises, versus the 6.25% general rate for non-food or immediately-consumed items)
• 86 Ill. Adm. Code 130.311 (defines "medicine or drug" as a preparation for human use that purports on its label to have medicinal qualities)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2019.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2019/st19-0010-gil.pdf

Original ruling text

ST 19-0010-GIL

04/29/2019

FOOD, DRUGS, & MEDICAL APPLIANCES:

CBD products sold primarily for internal human consumption may qualify for the low State rate
of tax. 86 Ill. Adm. Code 130.310. (This is a GIL.)

April 29, 2019
Dear Xxxxx:
This letter is in response to your letter received April 9, 2019, 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 requesting a letter of ruling on the sales tax amount I need to charge for selling
CBD products in my new store. All products that we sell are derived from the hemp
plant with less than .3 THC. (State and Federal law). I researched retailers [sic]
occupation tax Section 130.311 but it does not list specifically anything about
CBD/Hemp products being sold. We sell products that are topical creams -ointments
and mostly ingested products (oils, edibles, beverages all with CBD)
COMPANY- Sales Tax # (###) WEBSITE, ADDRESS
DEPARTMENT’S RESPONSE:
The Department’s regulation at 86 Ill. Adm. Code 130.310 discusses the appropriate tax rates
for food, soft drinks and candy. Food that is to be consumed off the premises where it is sold (other
than alcoholic beverages, soft drinks, and food that has been prepared for immediate consumption) is
taxed at the rate of 1% plus applicable local taxes. Food is defined as any solid, liquid, powder or
item intended by the seller primarily for human internal consumption, whether simple, compound or
mixed, including foods such as condiments, spices, seasonings, vitamins, bottled water and ice.
Products that do not meet the appropriate definition of food or that are food prepared by the vendor
for immediate consumption, are taxable at the higher State sales tax rate of 6.25% plus applicable
local taxes.

ST 19-0010-GIL
Page 2
A medicine or drug is defined as any pill, powder, potion, salve, or other preparation for human
use and that purports on the label to have medicinal qualities. See 86 Ill. Adm. Code 130.311.
Therefore, if vitamins, food supplements or meal replacement drink mixes are for human use and
purport on the label to have medicinal qualities, such items are considered to be drugs and are taxed
at the low rate of tax. Since not many vitamins, food supplements or meal replacement drink mixes
are likely to make medicinal claims, they would not qualify as a medicine or drug, however, such
items would be considered to be food subject to 86 Ill. Adm. Code 130.310 at taxed at the 1% rate.
The Department is not aware that CBD products have labels that make medicinal claims and is
unable to determine if they should be taxed as medicines or drugs. If the CBD products are sold
primarily for internal human consumption, they would be considered as food and taxed at the rate of
1%.
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,
Richard S. Wolters
Associate Counsel

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