Illinois: Sales Tax Handbook
What purchases are taxable in Illinois?
The taxability of various transactions (like services and shipping) can vary from state to state, as do policies on subjects such as whether excise taxes or installation fees included in the purchase price are also subject sales tax. This reference is here to help answer your questions about what is and is not subject to the Illinois sales tax.
Contents1.) Taxability of Goods and Services
- General Illinois taxability guidelines
- Are services subject to sales tax?
- Is shipping & handling subject to sales tax?
- Are drop shipped items taxable?
Section 1: Taxability of Goods and Services
What transactions are generally subject to sales tax in Illinois?
Illinois requires tax to be collected on all tangible items that can be used or consumed. The state divides "tangible items" into three categories:
a. Qualifying food, drug, and medical appliances
b. Items to be titled or registered
c. General merchandise
Are services subject to sales tax in Illinois?
Generally speaking, services in Illinois are not taxable. Note: if the service provided results in a product, the product is subject to sales tax. The labor is not taxable, but the product itself is a taxable good. The Service Occupation Tax, otherwise known as SOT, is applied in a situation where any tangible personal property is being transported, and concurs with a service transaction.
You can find a table describing the taxability of common types of services later on this page.Top
Are shipping & handling subject to sales tax in Illinois?
Shipping tax in Illinois offers a few nuances that you should be aware of. Shipping is not taxable in Illinois if the customer and the seller mutually agree upon the cost. In addition, for shipping to remain tax free, you cannot make it a part of the purchase price. However, if the shipping price exceeds the actual cost of shipping, then the shipping is taxable.
For online sales that require shipping to be paid in order for the customer to receive the item, there is no choice for the customer; therefore, the shipping is taxable. On the other hand, if customers are given the choice to pick up an item, then shipping fees are again ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œagreed uponÃƒÂ¢Ã¢â€šÂ¬Ã‚Â because there was a choice offered; therefore, they are not taxable.
Are drop shipments subject to sales tax in Illinois?
"Drop shipping" refers to the common business practice in which a vendor, often in a different state, makes a sale of a product which is shipped to the end-user by a third party supplier hired by the initial vendor. In Illinois, drop shipments may or may not be subject to taxation depending on the circumstances.
Section 2: Taxability of Various Items in Illinois
This table shows the taxability of various goods and services in Illinois. If you are interested in the sales tax on vehicle sales, see the car sales tax page instead. Scroll to view the full table, and click any category for more details.
|Products on Amazon.com||TAXABLE *|
|Food and Meals|
|Grocery Food||TAXABLE *|
|Leases and Rentals|
|Motor Vehicles||EXEMPT *|
|Tangible Media Property||EXEMPT *|
|Manufacturing and Machinery|
|Raw Materials||EXEMPT *|
|Utilities & Fuel||TAXABLE|
|Medical Goods and Services|
|Medical Devices||TAXABLE *|
|Newspapers and Magazines|
|General Occasional Sales||EXEMPT *|
|Motor Vehicles||EXEMPT *|
|Optional Maintenance Contracts|
|General Optional Maintenance Contracts||EXEMPT *|
|Parts Purchased for Use in Performing Service Under Optional Maintenance Contracts||TAXABLE|
|Pollution Control Equipment|
|General Pollution Control Equipment||TAXABLE *|
|Software and Digital Products|
|Canned Software - Delivered on Tangible Media||TAXABLE|
|Canned Software - Downloaded||TAXABLE|
|Custom Software - Delivered on Tangible Media||EXEMPT|
|Custom Software - Downloaded||EXEMPT|
|Customization of Canned Software||EXEMPT *|
|Vending Machine Sales|
* See notes in category taxability page for details
Back to Illinois Sales Tax Handbook Top