Illinois State Tax Updates

Our Dash of SALT Blog provides the most recent developments and changes in state and local tax regulations. Here are the latest updates for Illinois.

March 16, 2026

Legal Challenge Filed Against Chicago’s Social Media Tax

Authored by: Emilia Jarrin and Penny Sweeting, CPA

Netchoice, a tech industry group, has filed a lawsuit challenging Chicago’s new tax on social media companies, asking the court to strike it down. Effective January 1, 2026, the tax applies to platforms that collect data from more than 100,000 Chicago users. The rate of the tax is $0.50 per user above the 100,000 threshold each month.

NetChoice argues the tax violates federal law, the U.S. Constitution, and the Illinois Constitution, including claims related to free speech and interstate commerce. The group also contends the tax unfairly targets online businesses while excluding other types of websites based on content. Chicago officials have not yet been served but maintain that the tax is legally sound and defensible.

If you have questions on state taxation of digital goods and services, please reach out to a member of the Withum SALT Team.

January 20, 2026

Chicago Increases the Personal Property Lease Transaction Tax to 15%

Authored by: Breea Boylan, CPA and Courtney Easterday, MSA

Beginning January 1, 2026, the City of Chicago increased its Personal Property Lease Transaction Tax (PPLT) rate from 11% to 15%. This tax applies to all businesses and individuals that lease or rent personal property used within Chicago’s city limits. According to the City of Chicago’s 2026 Revenue Ordinance, the new 15% rate applies broadly to “the lease or rental price for all leases,” expanding the financial impact on both lessors and lessees operating in the city. The tax’s scope extends beyond physical equipment and includes non-possessory computer leases, such as cloud computing environments, SaaS (Software as a Service) platforms, and remote-access software solutions, categories that have long been treated as taxable under Chicago’s digital lease framework. By raising the PPLT, the City aims to increase revenue while maintaining parity between traditional equipment leases and modern digital-use models.

If you have questions about local taxes, please reach out to a member of the Withum SALT Team.

January 20, 2026

Illinois Releases Guidance for Marketplace Facilitators, Remote Sellers and Service Persons

Authored by: Breea Boylan, CPA and Courtney Easterday, MSA

The Illinois Department of Revenue released new guidance for servicepersons and marketplace facilitators outlining significant changes to the state’s Service Occupation Tax (SOT) effective January 1, 2026. Under the updated rules, the previous 200-transaction threshold will no longer apply to out-of-state servicepersons who maintain a business presence in Illinois and make sales of service-related tangible personal property to Illinois customers, whether directly or through marketplace facilitators. Instead, SOT liability for these transactions will now be determined by a $100,000 gross receipts threshold based on sales of services. For destination-based sales where the seller does not provide adequate location information, the Department will assess tax on gross receipts at a 15% rate, and unprocessable-return penalties will not be imposed.

These updates intersect with significant 2025–2026 Illinois tax reforms, including the expansion of destination-based sourcing effective January 1, 2025, which requires remote sellers and facilitators to source Retailers’ Occupation Tax (ROT) based on the delivery location of Illinois customers. At the same time, Illinois is simplifying nexus standards, including eliminating the 200-transaction test for many remote retailers under new legislation.

If you have questions about marketplace facilitator obligations, please reach out to a member of the Withum SALT Team.

November 25, 2025

Illinois DOR Clarifies Additional Sales Tax on Operating Leases

Authored by: Brandon Spinella and Penny Sweeting, CPA

The Illinois Department of Revenue issued guidance on applying additional sales tax to operating leases. Beginning January 1, 2025, businesses leasing tangible personal property at retail in Illinois must pay state and local retailers’ occupation tax on gross receipts from leases, even for agreements signed before that date. This change applies broadly to leasing transactions, with certain exceptions for registered vehicles. Previously, companies typically paid use tax on leased equipment, but the new rule shifts the obligation to retailers’ occupation tax for ongoing leases.

If you have any questions about Illinois sales tax, please reach out to a member of the Withum SALT Team.

November 10, 2025

Illinois Confirms Artificial Intelligence Not Subject to Sales Tax

Authored by: Breea Boylan, CPA and Courtney Easterday, MSA

The Illinois Department of Revenue has confirmed that artificial intelligence services delivered via the cloud, such as generative AI tools or chatbots, are not subject to Illinois sales tax in a recent letter ruling posted on the Illinois Department of Revenue website under ST25-0050-GIL. This ruling aligns with the state’s treatment of Software as a Service (SaaS), which is generally exempt when no tangible personal property is transferred. Businesses offering AI or SaaS solutions should review their delivery models to ensure compliance, as downloadable components or locally installed software may still trigger tax obligations.

If you have questions about how states are taxing AI, please reach out to a member of the Withum SALT Team.

October 13, 2025

Illinois Grocery Tax Eliminated in 2026: Local Rates May Apply

Authored by: Bonnie Susmano, JD, MBA and Ryan Schupp

Starting January 1, 2026, Illinois will eliminate its 1% state grocery tax, but municipalities will still be allowed to impose a local grocery tax up to 1%. For a municipal or county grocery tax to take effect on January 1, 2026, the municipality or county must have filed an ordinance with the Illinois Department of Revenue (IDOR) by October 1, 2025, and IDOR must approve the ordinance. Local ordinances may be filed after October 1, but the effective date of local ordinances is tied to the filing date:

Ordinances filed by April 1 take effect on July 1 of the same year. For example, ordinances received after October 1, 2025, and approved by IDOR on or before April 1, 2026, will take effect July 1, 2026.
Ordinances filed by October 1 take effect on January 1 of the following year.

Retailers should know that many municipalities and counties already have ordinances filed that will take effect on January 1, 2026.

If you have questions on state and local sales taxes, please reach out to a member of the Withum SALT Team.

October 6, 2025

Illinois Adopts Amended Apportionment Rules for Financial Institutions

Authored by: Kiana McGowan, CPA, MBA and Penny Sweeting, CPA

On September 12, 2025, the Illinois Department of Revenue adopted amendments to the apportionment rules for financial organizations under Public Act 103-0592, effective for tax years ending on or after December 31, 2024. Previously, investment and trading income was sourced based on the location of substantive business contacts, typically tied to a fixed place of business. Income was attributed to Illinois only if those contacts occurred within the state.

Under the new rules, Illinois now uses a formula-based apportionment method. Investment and trading receipts are apportioned using the ratio of Illinois-sourced receipts from other business activities to total non-investment receipts. This shift may require non-Illinois financial institutions to apportion some investment income to Illinois, while Illinois-based firms could see reduced apportionment if their investment activities are more geographically dispersed.

For full details, refer to the Illinois Department of Revenue’s Proposed rules here.

If you have questions about state income tax apportionment, please reach out to a member of the Withum SALT Team.

September 8, 2025

Illinois Offers Tax Amnesty Program

Authored by: Breea Boylan, CPA and Courtney Easterday, MSA

The Illinois Department of Revenue has issued a tax amnesty available to all taxpayers with outstanding Illinois tax debt pursuant to the 2025 Illinois Tax Delinquency Amnesty Act. The Illinois Tax Delinquency Amnesty Act provides taxpayers with the opportunity to pay outstanding eligible tax liabilities and have eligible penalties and interest forgiven for taxes paid in full during the amnesty period. Eligible liabilities are taxes due from periods ending after June 30, 2018, and prior to July 1, 2024. To participate, taxpayers with an existing tax liability must make full payments of the eligible tax liability between October 1, 2025, through November 17, 2025. If an eligible tax liability is paid in full by October 1, 2025, through November 17, 2025, eligible penalties and interest will be waived.

If you have questions about the Illinois amnesty, please reach out to a member of the Withum SALT Team.

September 1, 2025

Illinois Implements Income Tax Changes (Effective June 16, 2025 – January 1, 2026)

Authored by: Bonnie Susmano, JD, MBA and Joe Petrucci

On June 16, 2025, Illinois enacted Public Act 104-0006, introducing significant changes to the Illinois Income Tax Act. For tax years ending on or after June 16, 2025, gains and losses from sales or exchanges of S corporations and partnerships (other than investment partnerships) will be allocated, not apportioned. Additionally, starting with tax years ending on or after December 31, 2025, Illinois will use the Finnegan method for sales factor apportionment, including throwback and throw-out rules. For tax years ending after December 31, 2025, the state will follow federal guidelines for allocating certain interest expenses under IRC §163(j). It will apply a 50% limitation on the dividend-received deduction for global intangible low-taxed income (GILTI). Taxpayers and preparers should carefully consider these changes when calculating estimated payments and filing returns to avoid underpayment penalties.

If you have questions about sourcing the gain on the sale of a business interest, please reach out to a member of the Withum SALT Team.

July 24, 2025

Illinois Sales and Use Tax Changes for Illinois Retailers

Authored by: Breea Boylan, CPA and Penny Sweeting, CPA

The Illinois Department of Revenue implemented Public Act 103-983 to change the tax obligation for retailers maintaining a place of business in Illinois and make sales to Illinois customers located outside the State of Illinois. Prior to January 1, 2025, these sales were subject to Illinois’ Use Tax. Effective January 1, 2025, these retailers now have an obligation to incur destination-based retailers’ occupation tax on these sales, which is Illinois’s Retailers’ Occupation Tax. For Illinois’s Retailers’ Occupation Tax, the tax rate to be applied is the combined state and local rate in effect at the destination. Previously, the sales tax rate applied was only the use tax at the state rate. The Illinois Department of Revenue aims to promote consistency in tax collection between brick-and-mortar and online/out-of-state retailers.

If you have questions about state sales tax obligations, please reach out to a member of the Withum SALT Team.

June 20, 2025

Illinois Bill Includes Significant Income Tax Provisions

Authored by: Kiana McGowan, CPA, MBA and Penny Sweeting, CPA

On June 4, 2025, Illinois HB 2755 was passed, introducing several income tax changes that will affect businesses starting with tax years ending on or after December 31, 2025. The dividends received deduction for GILTI will be reduced from 100 percent to 50 percent, increasing the taxable income base for multinational corporations. The legislation also revises the rules for adding back interest and intangible expenses paid to foreign affiliates by removing key exceptions and changing how interest limitations under IRC Section 163(j) are applied. These changes may result in higher Illinois tax liability and require businesses to reassess their intercompany arrangements.

The bill also adopts the Finnigan rule, which requires each member of a unitary group to include a share of the group’s Illinois sales in its apportionment factor. This could increase the state tax burden for multistate businesses. Additionally, nonbusiness gains from the sale of interests in partnerships or S corporations, excluding investment partnerships, will now be sourced to Illinois if the entity is taxable in the state. The sourcing is based on a three-year average of the entity’s Illinois apportionment factor. Businesses should evaluate how these changes may affect their tax planning, compliance, and transaction structures.

More information on the state’s proposed changes can be found here.

If you have questions about State Income Taxes, please reach out to a member of the Withum SALT Team.

May 6, 2025

Illinois Releases Guidance Regarding Tariffs

Authored by: Chao Zhang, MSA and Bonnie Susmano, JD, MBA

On April 7, 2025, the Illinois Department of Revenue issued General Information Letter No. ST-25-0022-GIL, clarifying the taxation of tariffs on imported merchandise. When the consignee, or importer, is responsible for tariffs, those tariffs are not taxable. However, when sellers include tariffs in the selling price, those amounts are reportable as gross receipts subject to the retailer’s occupation tax (i.e., sales tax). Additionally, tariffs separately stated on invoices and payable by customers are part of the taxable selling price used for computing sales tax. Tariffs are business expenses and are not deductible from the liability for retailers’ occupation tax when paid by the consumer.

If you have questions about how tariffs affect State and Local Taxes, please reach out to a member of the Withum SALT Team.

February 25, 2025

Illinois DOR Issues Information on Taxability of Online Video Game Purchases and Computer Software

Authored by: Brandon Spinella and Penny Sweeting, CPA

The Illinois Department of Revenue (DOR) released a general information letter (ST24-0036-GIL, 12/16/24) that provided guidance regarding the taxability of online video game purchases and computer software. The DOR explains that the Retailers’ Occupation Tax applies to computer software, including online video games, game extras, and in-game currency downloaded onto a consumer’s computer in the state. The DOR deems this as tangible personal property. The General Information Letter issued by the state also provides details on the tax treatment of computer software, licensing, cloud-based delivery, and free downloads. While the general information letter is not binding to other taxpayers, it is helpful guidance to understand the position of the state.

If you have questions about Illinois taxes or taxability, please reach out to a member of the Withum SALT Team.

February 18, 2025

Illinois Provides New Guidance on In-State Seller Presence and Sales Sourcing Rules

Authored by: Bonnie Susmano, JD, MBA and Kiana McGowan, CPA, MBA

In January 2025, the Illinois Department of Revenue released PIO-125 with comprehensive guidance to help retailers determine if they have a physical presence in Illinois. This guidance outlines the criteria for establishing a physical presence and provides detailed instructions on sourcing sales to ensure compliance with Illinois sales tax laws. The new Illinois guidance outlines that a seller is considered to have a physical presence in the state if they maintain any business operations or representatives within Illinois, have contracts with Illinois-based individuals who refer customers for a commission exceeding $10,000 annually or have contracts with Illinois-based individuals selling similar products with commissions over $10,000 annually. After establishing a physical presence, sellers need to calculate the appropriate tax for each sale according to sourcing rules. PIO-125 offers examples and charts to help with this process.

A copy of PIO-125 can be found here for further details.

If you have questions about sales taxes, please reach out to a member of the Withum SALT Team.

February 18, 2025

Illinois Limits Its NOL Deduction to $500K for Corporate Taxpayers for Years 2024 Through 2027

Authored by: Courtney Easterday, MSA and Ryan Schupp

An administrative rule change adopted by the Illinois Department of Revenue limits the state’s Corporate NOL deduction for taxpayers filing Form IL-1120 to $500K. This rule is in effect for taxable years ending on or after December 31, 2024, and before December 31, 2027.

If you have questions about state NOL deduction limitations, please reach out to a member of the Withum SALT Team.

January 30, 2025

Illinois Governor Signs Omnibus Tax Legislation

Authored by: Brandon Spinella, Brian Meier, MSA and Courtney Easterday, MSA

On December 20, 2024, Illinois Governor J.B. Pritzker signed legislation making multiple changes to the state’s tax laws. Key updates include removing certain approval requirements and assessment provisions for the Department of Commerce and Economic Opportunity’s music and musicians’ tax credits, as well as mandating electronic filing for trailer lease tax returns beginning January 1, 2025. Additionally, it eliminates provisions for prepaid calling arrangements and updates licensing periods to a maximum of one year under the Tobacco Products Tax Act of 1995. The bill will extend the allowable use of municipal tax proceeds for non-home rule municipalities to include municipal operations until January 1, 2031.

If you have questions about state tax changes, please reach out to a member of the Withum SALT Team.

January 30, 2025

Illinois Sales and Use Tax Matrix Updates

Authored by: Bonnie Susmano, JD, MBA and Breea Boylan, CPA

Effective January 1, 2025, the Illinois Department of Revenue issued an updated Sales and Use Tax Matrix, which notably indicated that taxpayers who lease or rent tangible personal property in the ordinary course of business are considered retailers subject to Illinois’ Sales and Use Tax laws and must register with IDOR to remit tax collected on their lease or rental receipts. The Retailers’ Occupation Tax Act states that a lease of tangible personal property is a sale at retail. However, this tax does not apply to leases of motor vehicles, watercraft, aircraft, or semitrailers, as defined in Section 1-187 of the Illinois Vehicle Code.

If you have questions about Illinois taxes, please reach out to a member of the Withum SALT Team.

December 11, 2024

Illinois Retailers’ Occupation Tax Guidance for In-State Sales Sourced Out-Of-State

Authored by: Bonnie Susmano, JD, MBA and Brandon Spinella

Effective January 1, 2025, retailers previously obligated to collect and remit Illinois Use Tax (UT) on retail sales to Illinois customers sourced outside of Illinois are now subject to destination-based retailers’ occupation tax (ROT). This change affects retailers with any physical presence in Illinois who make sales to customers in the state that are sourced outside the state.

For destination-based sales, retailers must register a tax site for each jurisdiction (i.e., city or county) where it made a sale or plans to make sales. See below for additional information:

For Out-of-State retailers, the Illinois Department of Revenue will change your registration status from UT to ROT, if applicable. You must register new tax sites to your account after December 23, 2024.
Illinois retailers should already be registered to remit ROT. Your registration status will not change if you are registered for ROT. You are responsible for registering new tax sites for any sales sourced outside of Illinois to your account.

If you have questions about sales tax compliance, please reach out to a member of the Withum SALT Team.

December 3, 2024

Illinois Sales Tax Rate Change

Authored by: Katie Nguyen, CPA and Ryan Schupp

The Illinois Department of Revenue released an informational bulletin announcing sales tax rate changes taking effect on January 1, 2025. These rate changes will affect the following taxes: business district sales tax, home rule municipal sales tax, and non-home rule municipal sales tax. Rate changes for each jurisdiction will increase by as little as 0.25% or increase as much as 1.5%, like Cook County. (Illinois Dept. of Rev. Info. Bulletin No. FY 2025-12, 11/01/2024.)

If you have any questions about this update, please contact the Withum SALT Team.

November 7, 2024

Illinois Release Retailers’ Discount Cap FY 2025-04

Authored by: Katerine Velasquez and Penny Sweeting, CPA

The Illinois Department of Revenue released bulletin FY 2025-04, which clarifies that retailers filing sales and use tax returns, aviation fuel sales and use tax returns, cannabis dispensary tax returns, and rental purchase agreement occupation tax returns may claim a retailer’s discount up to $1,000 per month. The $1,000 cap becomes effective for returns due on or after January 1, 2025.

If you have questions about whether your business is eligible for a retailer’s discount, please reach out to a member of the Withum SALT Team.

Disclaimer: Please note that this information is readily available at this time and is subject to change, so please consult your Withum tax advisor.