Illinois State Tax Rulings

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

Illinois taxes retail motor vehicle sales under the Retailers' Occupation (sales) Tax/Use Tax and generally allows a trade-in credit for a like-kind vehicle traded in (with no $10,000 cap for sales on…

My out-of-state SaaS company is going to start having customers headquartered in Illinois -- does that create nexus requiring us to file an Illinois corporate income tax return, and if so, what sales threshold triggers it?

The Department would not say definitively whether selling SaaS to Illinois customers creates Illinois corporate income tax nexus -- nexus determinations are considered too fact-specific for a letter r…

Does an out-of-state company that mails lab test kits to Illinois customers and analyzes the returned samples owe Illinois Use Tax, or is the whole transaction an untaxed service?

Yes, Use Tax generally applies: when a company ships tangible personal property (here, at-home sample-collection kits) that it purchased outside Illinois to Illinois customers for their use, the compa…

If a company operates an EV charging station and sells electricity at retail to drivers, does it -- rather than the electric cooperative or utility that supplied the power -- have to register with the Department and collect and remit the Electricity Excise Tax?

Yes. The EV charging station operator, as the last supplier delivering electricity to the retail consumer, is the "delivering supplier" responsible for registering with the Illinois Department of Reve…

Can a construction contractor that can't tell at the time of purchase whether materials will be installed into real estate or sold over the counter buy everything tax-free from its supplier and self-report a flat percentage of tax later?

Only partly. Under 86 Ill. Adm. Code 130.2075(b), a contractor who genuinely can't tell at purchase whether materials will be installed into real estate or sold at retail may certify to its supplier t…

Our sales factor excludes our foreign licensing royalties because they're under Illinois's 50%-of-gross-receipts threshold -- can we get alternative apportionment to include them anyway since they're a big, high-margin chunk of our income?

No -- the Department denied the petition because the taxpayer only showed that the statutory 50%-of-gross-receipts test excludes its foreign royalties from the sales factor and that a different formul…

What is the correct combined Hotel Operators' Occupation Tax rate that a Chicago hotel should charge, and why does the Department-administered portion come out to 11.9% instead of the seemingly simpler 11.5%?

For a Chicago hotel, the Illinois Department of Revenue confirmed the rate it administers (State Hotel Operators' Occupation Tax + Chicago Municipal Hotel Tax + Illinois Sports Facilities Tax + MPEA t…

We sold a discrete segment of our multi-state business, and the small Illinois piece of that segment was only a sliver of the deal's value -- can we get Illinois to apportion the gain using just that entity's actual share instead of the standard sales-factor formula?

One of our employees was granted non-qualified stock options while working in Illinois, but relocated to another state before all the options vested and were exercised -- do we need to withhold Illinois income tax when those options are later exercised?

No withholding is required. Illinois GIL IT 23-0016-GIL concludes that even though non-qualified stock option income exercised after an employee relocates out of Illinois may still count as Illinois-s…

What did the Illinois Department of Revenue say in its 2023 responses to a national tax-survey publisher's questionnaire about repair labor, federal excise taxes, corporate liquidations, NFTs, the simplified sellers use tax program, and a retail delivery fee?

Illinois does not impose a retail delivery fee and does not offer a simplified sellers use tax rate for remote sellers; it does tax repair labor on tangible personal property (but not repair labor on …

I'm a permanent U.S. resident living in Illinois and I just started receiving my UK State Pension -- does Illinois tax that pension income?

It depends on exactly what kind of foreign pension you receive, and the Department couldn't determine that from the taxpayer's letter. If the foreign pension is treated like Social Security or railroa…

Does a company that sells motor vehicles only for resale (never at retail) have to file transaction reporting returns and risk the $100 Uniform Penalty and Interest Act penalty for not filing them?

No. The Department ruled that the taxpayer is not liable for the $100 Uniform Penalty and Interest Act penalty (35 ILCS 735/3-3(a-15)) for not filing transaction reporting returns (Form ST-556 or ST-5…

Is granola taxed at Illinois's lower grocery/food sales tax rate or its higher general-merchandise/candy rate?

It depends on the form: granola sold as a loose cereal (not in bars, drops, or pieces) is taxed at the low 1% food rate no matter what it contains, but granola sold in bar form is treated as "candy" -…

Do solar panels and related wiring, incorporated into the ground with concrete at a solar farm inside an Illinois enterprise zone, qualify as exempt 'building materials' under the enterprise zone sales tax exemption?

Possibly, but the Department would not say for sure in this GIL -- solar panels are not specifically listed in the building materials exemption regulation, but the Department noted that other equipmen…

If a company manufactures signs, hires a third party to install them, and bills its dealers for the supply, freight, and installation, does it owe Illinois Retailers' Occupation (sales) Tax, Use Tax, or Service Occupation Tax on the sign -- and does the answer change once the sign is bolted to a concrete foundation?

It depends on whether the sign has "commercial value" to buyers generally and whether it becomes permanently affixed to real estate. A sign with commercial value (e.g., one reading generic words like …

Does an online reseller have to charge and collect Illinois sales tax on a "buyer's premium" it adds on top of the sale price of each item?

Yes. A buyer's premium is part of the seller's taxable gross receipts / selling price under the Retailers' Occupation Tax, because no deduction from gross receipts is allowed for the seller's costs of…

I moved out of Illinois partway through the year and kept working remotely for my Illinois employer, but my W-2 shows 100% Illinois wages -- how do I get Illinois to only tax the part of my income earned while I was still a resident, and get credit for tax I paid to my new state?

It depends on documentation, not just where you physically live -- Illinois sources compensation based on where the employee's service is performed or, if that's split, on the employee's 'base of oper…

Does a company that runs a service-matching marketplace app owe Retailers' Occupation Tax, Use Tax, or Service Occupation Tax on the small kits of branded items (placards, stickers, etc.) it gives to the service providers who sign up on its platform?

Only Use Tax, and only on the Department's cost price of those items. The Department ruled the marketplace-facilitation fees are for a non-taxable service, and because the company gives away only a sm…

Is a company's charge for additional 'report credits' -- which let a wellness provider's customers keep generating nutritional-assessment reports through a software program -- taxable as tangible personal property, or is it a nontaxable license/service, under Illinois sales and use tax law?

The Department could not say either way on the facts given. Computer software is generally taxable tangible personal property in Illinois, but a software license is exempt from Retailers' Occupation T…

I'm an Illinois resident who works part-time in another state and deduct student loan interest -- why does Illinois make me subtract that deduction from my out-of-state income when figuring my credit for taxes paid to that state?

Yes, the Department confirmed that Schedule CR is correct: when an Illinois resident computes the credit for taxes paid to another state, the student loan interest deduction must be subtracted from (a…

I'm an Illinois resident who pays tax to other states -- why does my whole HSA deduction get subtracted from my out-of-state income on Schedule CR instead of just a proportional share?

It depends on the deduction, not on proportional apportionment -- and for the HSA deduction, Illinois requires the full amount to be allocated against out-of-state income when figuring the Schedule CR…

Does Illinois sales/use tax exemption for aircraft maintenance parts still require the seller or repairer to hold an FAA Air Agency Certificate and operate a Part 145 repair station?

No, not after January 1, 2024. Public Act 103-0009 removes the FAA Air Agency Certificate, Class IV Rating, and Part 145 operations requirements from the Illinois aircraft-parts exemption (35 ILCS 120…

If a car dealer sells vehicles to its own affiliate, and the affiliate rents those vehicles to the dealer's service customers as loaners, how does Illinois's Automobile Renting Tax apply, and is the sale from dealer to affiliate itself taxable?

The dealer's sale of vehicles to its affiliate is exempt from Retailers' Occupation Tax and Use Tax because the vehicles will be used exclusively for automobile renting (35 ILCS 120/2-5(5); 35 ILCS 10…

How should a construction contractor that also sells tangible personal property over-the-counter (a 'combination' or 'dual-purpose' contractor) handle Illinois sales and use tax on the materials it buys and the ST-1 return it files?

A construction contractor is treated as the end user of materials it permanently affixes to real property, so it owes Use Tax on the cost price of those materials -- but if it gave its supplier a resa…

My accountant never checked the box to waive the carryback of our old net operating loss, and now the Department has carried it back to earlier years and created tax due I didn't expect -- can that be undone?

No -- if the taxpayer did not make a timely election under IITA Section 207(a-5) to relinquish the carryback period (by checking the box on the loss-year return by its extended due date), the loss mus…

I took a lump-sum retirement distribution and claimed Net Unrealized Appreciation (NUA) treatment, but I also have a federal net loss carryforward that offset the NUA gain on my federal return -- does that net loss carryforward stop me from subtracting the NUA on my Illinois return?

No -- according to the Department, a federal net loss carryforward does not affect your eligibility for the Section 203(a)(2)(F) subtraction for net unrealized appreciation (NUA) on employer securitie…

I have an Illinois resident employee who works full-time in Tennessee, which has no state income tax withholding -- do I report their wages as Illinois wages in Box 16 of their W-2, or report zero?

Report the wages as Illinois wages in Box 16 -- Publication 130 is correct and controls, not the older GIL. Because the employee is an Illinois resident performing all services in Tennessee (which has…

My Illinois-resident employee splits work time between an out-of-state office and an Illinois office each pay period -- can I use my own proration method (or must I use a time and attendance system or Form IL-W-6) to figure out how much of the wages are taxable to Illinois?

The Department didn't approve or reject the taxpayer's specific proration method -- instead it explained the governing rule: under IITA Section 304(a)(2)(B)(iii), compensation is paid in Illinois if t…

Is a yearly subscription fee for using computer software (not owning it) subject to Illinois sales tax?

It depends on how the software is delivered and licensed: cloud-based software that is never downloaded to the customer's computer is not taxable, and a properly-documented software license meeting fi…

Does machinery and equipment used to blast freeze, slow freeze, cool, and cold-store perishable food products for a manufacturer's customers qualify for Illinois's manufacturing machinery and equipment (MM&E) sales/use tax exemption?

Yes. The Illinois Department of Revenue ruled that the freezer, cooling, and cold-storage machinery and equipment described by the taxpayer qualifies for the manufacturing machinery and equipment exem…

What does Illinois General Information Letter IT 23-0007-GIL conclude about Base Income — Elimination Of?

YES, confirmed -- because the >90%-owned partnership is treated as a full member of the Illinois unitary business group, the intercompany royalty, service-fee, and interest items (and the IP-transfer …

Does an accelerated lump-sum pension payment stay exempt from Illinois income tax after a company sale triggers plan termination?

The Department did not confirm the lump sum would be exempt. It first corrected the taxpayer's own citation -- Section 1402 of the Illinois Income Tax Act governs the Department's notice requirements,…

Does a lump-sum payment that replaces years of scheduled retirement benefits stay exempt from Illinois income tax when a company sale forces early plan termination?

The Department did NOT confirm the lump sum would be exempt. It corrected the taxpayer's citation -- Section 1402 of the Illinois Income Tax Act governs the Department's own notice requirements, not t…

What does Illinois General Information Letter IT 23-0004-GIL conclude about Nexus?

The Department explicitly declined to answer. IDOR does not issue letter rulings resolving specific nexus questions because nexus determinations are inherently fact specific, so it never decided wheth…

For an out-of-state retailer that sells to tax preparers (including through a marketplace facilitator), when did Illinois's economic nexus/remote-seller rules take effect, and are products like presentation folders, envelopes, tax forms, and checks taxable?

The Department confirms that Illinois's Wayfair-style economic nexus standard took effect October 1, 2018 (a retailer must register and collect Illinois Use Tax once it has $100,000+ in Illinois sales…

A small van-rental business collects Illinois's Automobile Renting Tax from its customers, but the dealers it buys vehicles from won't honor a sales-tax exemption on those purchases -- is the business actually exempt from Retailers' Occupation Tax and Use Tax when it buys vehicles for its rental fleet?

Yes, generally: the Retailers' Occupation Tax Act and Use Tax Act exempt the sale of a motor vehicle that will be used for automobile renting as defined in the Automobile Renting Occupation and Use Ta…

What does Illinois General Information Letter IT 23-0003-GIL conclude about Credits?

The Department answered two of the employer's three questions: tips themselves are NOT counted as compensation when computing the minimum wage credit, but any amount the employer pays to make up a sho…

Does an out-of-state vehicle seller create Illinois nexus just because it hires a third-party company to calibrate equipment at customers' locations in Illinois after delivery?

The Department wouldn't say definitively -- nexus is too fact-specific for a GIL -- but it explained that an out-of-state retailer with an ongoing physical presence in Illinois (including through an a…

When a seller delivers goods in Illinois to a common carrier, contract carrier, or freight forwarder that then ships them out of state or out of the country, is the sale exempt from Illinois Retailers' Occupation Tax as an interstate or foreign commerce sale, and what documentation does the seller need to prove it (or to prove a resale or manufacturing exemption instead)?

Yes, the sale can be exempt as an interstate (or foreign) commerce sale, but only if the seller -- not the purchaser -- is shown as the consignor or shipper on the bill of lading and the seller keeps …

What Illinois sales tax rate applies to a soy-free, whole-food-based powdered shake mix?

It appears to qualify for the lower 1% state tax rate on food (temporarily reduced to 0% from July 1, 2022 through June 30, 2023) rather than the higher 6.25% rate for candy or soft drinks, because th…

Is a software company's canned software, hardware, installation/training services, support, and hosting taxable when sold and delivered to Illinois customers, and when does an out-of-state seller have to start charging Illinois sales/use tax?

Canned (pre-written) computer software and hardware are taxable tangible personal property in Illinois, but custom software is not; separately stated charges for training, installation, telephone assi…

Are the Illinois sales/use tax rules on titling and registering vehicles, watercraft, and aircraft (as summarized in a national Title and Registration Textbook) still accurate, and what should be updated for 2023?

The Department would not formally approve or endorse a third-party publication's summary, but it reviewed the submitted text and proposed specific corrections and additions -- most notably to reflect …

How long does the Illinois Department of Revenue have to assess additional Retailers' Occupation Tax (sales tax) or Use Tax after a return is filed, and is there a special 6-year rule like the one for income tax understatements?

Generally 3 to 3.5 years from when the taxable gross receipts were received under the Retailers' Occupation Tax Act (extended to as much as 3 years after a filed amended return), and 6 to 6.5 years un…

When a car dealer sells vehicles to its own rental affiliate, and the affiliate rents them out short-term (including as loaner cars while the dealer does warranty repairs), does Retailers' Occupation/Use Tax or Automobile Renting Tax apply, and what happens to manufacturer warranty reimbursements?

The dealer's sale of vehicles to its rental affiliate is exempt from Retailers' Occupation Tax and Use Tax because the vehicles will be used for automobile renting. The affiliate's short-term rentals …

Is a company's sale of software "credits," which let a customer generate additional reports from previously purchased hardware/software, a taxable sale of tangible personal property or a non-taxable intangible under Illinois sales tax law?

It depends on how the software is delivered and licensed. Illinois treats "canned" (prewritten) computer software as taxable tangible personal property, while custom software written to a customer's s…

Can a university sell meals tax-free to residential students who pay with 'dining dollars' from a mandatory meal plan, at dining locations that are also open to the general public?

Yes. The Department ruled that a university may make tax-free sales of meals to residential students who pay with 'Dining Dollars' purchased as part of a mandatory meal plan, even at dining locations …

What does Illinois require for a drop-shipped sale to be tax-exempt as a sale for resale, and when must a marketplace facilitator collect and remit Illinois sales tax on behalf of marketplace sellers?

For drop shipments, Illinois prefers an active registration or resale number on a Certificate of Resale, but will accept other documentation (including a certificate describing the drop-shipment scena…

What does Illinois General Information Letter IT 23-0002-GIL conclude about Alternative Apportionment?

The Illinois Department of Revenue DENIED the taxpayer's petition for alternative apportionment, at least for now, because the taxpayer did not meet its burden of proving the standard single-sales-fac…

Can a farmer who pays motor fuel tax on propane used exclusively for grain drying (not for operating vehicles on public highways) get a refund of that tax?

Only in limited circumstances, and usually not for propane used to power a grain dryer. Motor fuel tax applies to fuel used to operate motor vehicles on public highways or watercraft on state waters, …

What does Illinois General Information Letter IT 23-0001-GIL conclude about Base Income; Modifications?

NO, this Medicare premium income is NOT exempt from Illinois income tax (the federal premium-tax preemption doesn't reach Illinois's general net-income tax), so no add-back question arises since the i…

Does a not-for-profit organization owe Illinois sales tax or use tax on food it buys and serves at fundraisers, member dinners, or donation-based events?

It depends on whether the food is sold, donated-for, or given away free, and whether the organization holds an Illinois exemption ('E') number. If the organization pays Illinois use tax on the food wh…

Are gross receipts from renting hotel rooms to a 'permanent resident' (someone who stays or has the right to stay at least 30 consecutive days) subject to Illinois Hotel Operators' Occupation Tax, and can the guest get a refund of tax already collected?

No. Gross receipts from renting rooms to a 'permanent resident' -- anyone who has occupied or has the right to occupy a room (not necessarily the same room) for at least 30 consecutive days -- are exc…

Is a nonprofit's sale of digital exams, assessments, and study materials to schools, professional associations, and individual students/examinees subject to Illinois sales tax?

No. The Department found these digital assessments, licensing exams, and study materials are non-taxable personal/professional services (not tangible personal property or taxable digital goods), so sa…

Is a company's purchase of another company's business assets, arranged through a private broker rather than through the broker's internet auction, subject to Illinois Retailers' Occupation (sales) Tax, or does it qualify for the occasional sale exemption?

The purchase qualified for Illinois's occasional sale exemption and was not subject to Retailers' Occupation Tax. The Department ruled that because the sale of the seller's business assets was negotia…

In a true operating lease of a utility trailer registered in Illinois, is sales/use tax based on the price the lessor paid the dealer, or on the total lease payments the lessor expects to collect from the lessee?

Illinois bases the tax on the price the lessor paid the dealer, not on the total lease payments. Under a true lease, the lessor is treated as the end user of the trailer and owes Use Tax only on its o…

Can a licensed distributor sell dyed diesel fuel tax-free to a rental company that fuels non-highway equipment it rents out, without verifying how the rental company bills or resells the fuel?

Generally yes. A rental company that rents out machinery, equipment, and vehicles for non-highway use and burns dyed diesel fuel in them is treated as the fuel's end user, so a distributor or supplier…

Do flights an aircraft owner takes on their own plane, operated under an FAA Part 135 air carrier certificate, count toward the 50% trips-or-miles threshold needed to qualify the aircraft for Illinois's rolling stock exemption?

Yes. If a Part 135 air carrier carries persons or property for hire in interstate commerce, including flights for the aircraft's own owner or lessee under an arm's-length management agreement, that op…

Must an irrevocable trust file an Illinois Form IL-1041 if its trustee and beneficiaries have all moved out of Illinois?

Yes, the trust must file. Under IITA Section 1501(a)(20)(D), a trust is an Illinois resident trust if its grantor was domiciled in Illinois at the time the trust became irrevocable -- that fact alone …

Does a company that sells software as a service (SaaS), digital goods, and in-game purchases have to collect Illinois Retailers' Occupation Tax, Use Tax, or Service Occupation Tax?

Generally no. A provider of software as a service (SaaS) is acting as a "serviceman," and if it does not transfer any tangible personal property to the customer, the transaction generally is not subje…

Is a bundled all-inclusive sporting-event ticket (admission plus food and drink for one price) subject to Illinois Retailers' Occupation Tax, or only to local amusement tax?

It depends on proportion, not a fixed rule: if the food and drink bundled into a single ticket price are just incidental to the sporting event (the service), the transaction is treated as a sale of se…