Illinois is one of the more unique states when it comes to sales and use tax.
The “retailers’ occupation tax” is the state’s version of a sales tax and is imposed on the retail sale of tangible personal property.
A “service occupation tax” is a liability of the service provider and is imposed on tangible personal property transferred as an incident to their retail sale of services. Services themselves are generally exempt from the retailer’s occupation tax.
A “service use tax” is imposed on the privilege of using, in the state, real or tangible personal property that is acquired as an incident to a purchase of service from a serviceman. The tax is measured by the selling price of the tangible personal property transferred by the serviceman.
The state sales and use tax rate is 6.25%. A variety of local sales and use taxes exist and range from a rate of 0.5% to a combined local tax rate of 3.75% in some jurisdictions. However, localities cannot impose a “service use tax”.
With respect to the situs of the transaction for local tax purposes, location of the inventory from which the sale is made as well as the location where the order is accepted will influence whether or not local tax applies and at what rate. Where a retailer sells tangible personal property that is shipped from outside the state of Illinois to a customer located inside the state of Illinois, only the 6.25% state rate is charged.
Generally, the local sales and use tax is reported to and administered by the state of Illinois. However, the city of Chicago imposes a number of local taxes which are reported to and administered by the city.
Leases and Rentals
Unlike most states, leases or rentals of tangible personal property (except motor vehicles) are not subject to the Illinois retailers’ occupations tax/sales tax. Instead, lessors are considered users of the property and are subject to the sales or use tax when purchasing tangible personal property that they lease or rent to others.
Chicago has enacted a number of taxes which are in addition to or in the absence of the state sales and use tax. Following are a few examples of tax types and corresponding rates imposed and administered by the city of Chicago on services which are exempt from Illinois state sales and use tax:
- Personal Property Lease Transactions Tax – 9%
- Amusement Tax – 9% (5% for certain live theatrical, musical, and other live cultural performances held in an auditorium, theater, or other space whose maximum capacity (including balconies) is more than 750 persons.)