When an Illinois retailer sells food and beverages, does it collect both Use Tax and Retailers' Occupation Tax from the customer, and can it reduce what it remits to the State?

Subject

Retailer’S Occupation Tax

Plain-English summary

An attorney representing an Illinois restaurant asked the Illinois Department of Revenue to confirm how the state's "sales tax" system actually works under the hood, since the retailer pays Retailers' Occupation Tax (ROT) on its food and beverage sales but the customer-facing charge is commonly described as "Use Tax." The Department issued this General Information Letter (GIL) to walk through the mechanics rather than confirm or deny the taxpayer's specific situation.

The Department explained that Illinois really has two separate but linked taxes that together make up what people call "sales tax." The Retailers' Occupation Tax Act taxes the retailer for the privilege of selling tangible personal property (86 Ill. Adm. Code 130.101). The Use Tax taxes the purchaser for the privilege of using property bought at retail (86 Ill. Adm. Code 150.101). When a purchase happens in Illinois, the purchaser pays Use Tax to the retailer at the time of sale — but the retailer only collects one combined 6.25% state rate (plus any applicable local ROT), not both taxes stacked on top of each other.

On the remittance side, the retailer gets to reduce the Use Tax it would otherwise owe the Department by the amount of Retailers' Occupation Tax it actually pays on those same sales (86 Ill. Adm. Code 150.130). This prevents double taxation of the same transaction even though two different tax acts are technically in play. The letter also notes that for local retailers' occupation taxes, the legal obligation to pay falls on the retailer, but the General Assembly allows retailers to pass that cost through to customers as a separately stated (or combined) charge alongside the state tax, citing the home rule municipal and county ROT rules.

Because this is a GIL rather than a Private Letter Ruling, the Department did not certify that the specific facts described by the taxpayer were correct or complete — it simply restated the general legal framework found in its regulations. The letter reads as a confirmation of the mechanics the taxpayer described, but it is explicitly non-binding.

What this means for you

Restaurant and retail business owners

If you sell food, beverages, or other tangible personal property in Illinois, you generally collect a single combined rate from your customer at the point of sale — you are not required to separately stack the full Use Tax and full Retailers' Occupation Tax on the same transaction. When you remit taxes to the Department, you get credit against your Use Tax liability for the Retailers' Occupation Tax you actually pay on those sales, per 86 Ill. Adm. Code 150.130.

Businesses subject to local (home rule) taxes

If your locality imposes a home rule municipal or county Retailers' Occupation Tax, the legal liability for that tax is yours as the retailer, not the customer's. However, Illinois regulations (86 Ill. Adm. Code 270.101(b) and 220.101(b)) let you reimburse yourself by adding that local tax as a separately stated or combined charge with the state tax you collect from customers.

Accountants and tax professionals

This GIL is a useful plain-language explanation of how ROT and Use Tax interact and offset each other, but remember it is not binding on the Department and does not confirm any specific taxpayer's fact pattern — it simply restates 86 Ill. Adm. Code 130.101, 150.101, 150.130, and 150.515. If a client needs a binding answer for their specific situation, they would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110 instead.

Common questions

Q: Does an Illinois retailer collect both Use Tax and Retailers' Occupation Tax from a customer on the same sale?
A: The customer pays a single combined 6.25% state rate (plus any local ROT that applies), not the full amount of both taxes stacked together. Use Tax is legally imposed on the purchaser and ROT is legally imposed on the retailer, but only one 6.25% charge is collected from the customer at the register.

Q: Can a retailer reduce the Use Tax it owes the state?
A: Yes. Under 86 Ill. Adm. Code 150.130, a retailer reduces the amount of Use Tax it must remit to the Department by the amount of Retailers' Occupation Tax it actually pays to the Department on those same sales.

Q: Who is legally responsible for paying local Retailers' Occupation Tax — the retailer or the customer?
A: The legal incidence is on the retailer. But the General Assembly has authorized retailers to reimburse themselves by separately (or jointly) stating the local tax as an additional charge collected from the customer alongside the state tax.

Q: Is this letter binding on the Department or specific to one taxpayer's facts?
A: No. This is a General Information Letter, not a Private Letter Ruling. It is not a statement of Department policy and is not binding on the Department, even as to the requesting taxpayer. It simply directs the reader to the relevant regulations.

Q: Where are these rules found in Illinois regulations?
A: The Retailers' Occupation Tax imposition is at 86 Ill. Adm. Code 130.101; Use Tax imposition is at 86 Ill. Adm. Code 150.101; the Use Tax credit for ROT paid is at 86 Ill. Adm. Code 150.130; and the home rule pass-through rules are at 86 Ill. Adm. Code 270.101(b) (municipal) and 220.101(b) (county).

Citations and references

Statutes and regulations:

• 86 Ill. Adm. Code 130.101 (imposition of Retailers' Occupation Tax)
• 86 Ill. Adm. Code 150.101 (imposition of Use Tax)
• 86 Ill. Adm. Code 150.130 (Use Tax credit for Retailers' Occupation Tax paid)
• 86 Ill. Adm. Code 150.515 (collection of Use Tax by retailers)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedures)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedures)
• 86 Ill. Adm. Code 270.101(b) (Home Rule Municipal Retailers' Occupation Tax reimbursement)
• 86 Ill. Adm. Code 220.101(b) (Home Rule County Retailers' Occupation Tax reimbursement)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2020.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2020/st20-0007-gil.pdf

Original ruling text

ST 20-0007-GIL 03/03/2020 RETAILER’S OCCUPATION TAX
This letter discusses the Retailers’ Occupation Tax and Use Tax liability. See 86 Ill. Adm.
Code 150.130. (This is a GIL.)

March 3, 2020

Re:

Illinois Use Tax

Dear Xxxx:
This letter is in response to your letter dated November 5, 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:
This is a request for a general information letter on the imposition and collection of the
Illinois Use Tax by Illinois retailers.
My client is an Illinois retailer that provides food and beverages to its patrons. It pays
Illinois and local Retailers’ Occupation Tax (“ROT”) on its sales of food and beverages.
It is our understanding that the Illinois Use Tax also imposes a 6.25% tax on the patron
with respect to the sale. It is also our understanding that when our client collects tax
from the patron on the sale that it collects both the Illinois Use Tax and the State ROT
simultaneously (but only 6.25% collected), along with any local ROT due. See, 86 Ill.
Admin Code § 150.515 and § 150.130.
It is our understanding that under Illinois law in the remittance of these taxes collected,
our client reduces the amount of Illinois Use Tax it must remit to the State to the extent
of the amount of State ROT it pays to the State on the sale. 86 Ill. Admin Code §
150.130.
This General Information Letter request asks that the Illinois Department of Revenue
confirm that our above stated understandings of how the Illinois Use Tax and State ROT
works is correct.
If you have any questions, please call.

ST 20-0007-GIL
Page 2
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. 86 Ill. Adm.
Code 130.101. This tax is imposed on the retailer. Use Tax is imposed on the privilege of using, in
this State, any kind of tangible personal property that is purchased anywhere at retail from a retailer.
86 Ill. Adm. Code 150.101. Use Tax is imposed on the purchaser. These taxes comprise what is
commonly known as “sales” tax in Illinois. If the purchases occur in Illinois, the purchasers must pay
the Use Tax to the retailer at the time of purchase. The retailers are then allowed to reduce the
amount of Use Tax they must remit to the Department of Revenue by the amount of Retailers'
Occupation Tax liability which they are required to and do pay to the Department with respect to the
same sales. 86 Ill. Adm. Code 150.130.
The legal incidence of local retailers' occupation taxes is on the retailer. Nevertheless, the
General Assembly has authorized persons subject to any local retailers' occupation taxes to
reimburse themselves for their retailer’s occupation tax liability by separately stating such tax as an
additional charge, which charge may be stated in combination, in a single amount, with State tax
which sellers are required to collect under the Use Tax Act. See, for example, 86 Ill. Adm. Code
270.101(b), Home Rule Municipal Retailers’ Occupation Tax; and 86 Ill. Adm. Code 220.101(b),
Home Rule County Retailers' Occupation Tax.
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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