Illinois Sales Tax Problems

How to Be Compliant and Safeguard Your Business

If you run a business in Illinois or do a substantial amount of sales in this state, you need to collect sales tax from your customers. Failure to collect and pay these taxes can lead to penalties and potentially put you at risk of losing your business. If you're facing Illinois sales tax problems now, use TaxCure to find an experienced tax professional to help you. 

Key takeaways

• All businesses located in Illinois that sell taxable goods must collect and remit sales tax. 
• Failure to file or pay sales tax can lead to penalties and interest. 
• If you don't pay sales tax, the DOR may file a tax lien, garnish your wages, or seize your assets.
• The state can hold you personally liable for unpaid sales tax regardless of the structure of your business. 
• To help you get caught up, the DOR offers payment plans and other relief options. 

What is the sales tax rate in Illinois?

The state sales tax rate is 6.25% but local governments and special districts can add additional tax. For example, as of 2025, the sales tax rate is 6.75% in Centralia and 10.5% in Roselle in Cook County. 

Which items are subject to sales tax in Illinois?

Illinois assesses sales tax on most tangible personal property at rates that vary based on the following categories:

• 6.25% – General merchandise, including soda, prepared foods, computer software, prepaid phone cards, clothing, and most other tangible items. 
• 1% - Items required to be titled or registered, such as motor vehicles, ATVs, watercraft, aircraft, trailers, and manufactured (mobile) homes.
• 1% Qualifying food, drugs, and medical appliances, including most food sold at grocery stores (excluding hot food), medicine, and medical appliances. 

The local sales tax rate does not apply to qualifying food and medical appliances. For example, the sales tax rate in Chicago is 10.25% – that includes the state rate, 1.75% for Cook County, 1.25% for the City of Chicago, and 1% for their regional transportation. However, most groceries and medicine are only subject to the 1% state tax rate. 

Are services subject to sales tax in Illinois?

No, most services in Illinois are not subject to sales tax. However, there may be exceptions for services that involve the transfer of tangible property. Check with a tax professional or contact the DOR if you're unsure. 

Who needs to collect sales tax in Illinois?

All businesses located in Illinois that sell taxable goods or services must collect sales tax. Additionally, remote sellers with nexus in the state must collect sales tax and file returns. 

Nexus in Illinois

Remote sellers must collect sales tax if they meet either of the nexus thresholds:

• Over $100,000 in sales to customers in Illinois
• 200 or more separate transactions to Illinois customers

If you're a remote seller, you should check at the end of each quarter (the last day of March, June, September, and December) if you meet the threshold for the previous 12-month period. If so, you must collect and remit sales tax to the state. 

How to register for a sales tax account

To register for a sales tax account, you must complete the state's new business registration form. Here are the options with processing times:

1. Online: go to MyTax Illinois – one to two days
2. Mail Form REG-1 (Register a New Business) to the IDOR – six to eight weeks
3. In person using REG-1 and working with a state employee – varies

If applicable to your business, you may need to complete additional forms if you plan to sell liquor, cigarettes, tobacco, or electricity, or if you meet other requirements. 

How to file sales tax returns

You can file sales tax returns online or through the mail using Form ST-1. If you owe over $20,000 in sales tax for the year, you must file electronically. Otherwise, it's up to you if you want to e-file or mail your return and payment. 

However, you may also need to file the following forms in special situations:

• ST-1-X -- to make changes to a previously filed sales tax return.
• ST-2 -- to report sales tax for multiple locations.
• ST-2-X -- to amend a previously filed ST-2.

There may be additional forms depending on the situation, but typically, you just need to file one sales tax return on the due dates the Department gives you when you first set up your account.

Due dates for sales tax returns

Most retailers file monthly, but those with lower sales may file quarterly or annually. Returns must be filed by the 20th of the day following the period of sales. For example, a monthly filer must file their January sales tax return by February 20th. A quarterly filer must submit their first quarter return by April 20th, and an annual filer must file their return by January 20th of the year. 

Do I have to file if I don't have any sales?

Yes, you must file every period after you register your business, until you no longer operate. If you have no sales, simply note $0 sales on your tax return, and don't make a payment.

Sales tax audits

The Department can audit any of your sales tax returns, and they may select returns randomly or because their system picked up potential problems. During an audit, you must back up the details reported on your return. If you cannot substantiate the information on your return, the auditor may make changes to the return, and then you'll have to pay the tax as well as penalties and interest.

Consequences of not paying sales tax

If you do not pay sales tax, the DOR will assess penalties. They'll also add interest to your account backdated to the original due date. If you continue to not pay, the state may start involuntary collections – to seize the money from you without your cooperation. They can also hold you personally liable for your business's unpaid sales tax. 

Penalties for filing sales tax returns late

The state assesses the following penalties if you file late:

• Immediately – the lesser of $250 or 2% of the tax shown due on the return.
• Within 30 days of receiving a non-filing notice, the greater of $250 or 2% of the tax due on the return, up to $5000.

The 2% penalty is reduced by any timely payments you made. For instance, say that you didn't file on time, but you made an advance payment of $5000. You file your return three days late, and it shows tax due of $8000. Since you paid part of the tax, the 2% penalty only applies to the underpayment of $3000, bringing the penalty to $60.

However, if you don't file within 30 days of receiving a non-filer notice, you incur another penalty. If you owe $3000, the 2% penalty is still $60, but in this case, you must pay the $250 penalty, as that amount is higher. 

Penalties for late payments

If you pay your sales tax late, you will incur the following penalties based on how late you file:

• 2% – 1 to 30 days late.
• 10% – 31+ days late
• 15% – any amounts not paid until after the start of an audit 
• 20% – any amount not paid within the 30 days of the issue of an audit-prepared amended return. 

The penalty for filing a fraudulent return is 50% of the underreported tax. For instance, say that you file a sales tax return showing that you owe $1000. But the DOR audits your return and determines that you actually owe $11,000. They determine that this wasn't a simple oversight and that you deliberately committed fraud. The fraud penalty applies to the $10,000 that wasn't paid, making the penalty $5000. 

However, the negligence penalty is 20%. If the auditor decided that you were negligent and not fraudulent, the penalty for underreporting the $10,000 in tax would only be $2000. A tax professional can be critical if you're trying to argue that one penalty should apply but not another.

Involuntary collections

Eventually, if you don't pay, the DOR may resort to the following collection actions:

• Tax liens – last for 20 years and attach to all of the business's assets and potentially to your personal assets depending on the structure of your business. 
• Wage garnishments – if you work for an employer, the state can garnish your wages for unpaid tax. If you don't work for an employer, which is often the case with most business owners, the state may try to take other assets from you. 
• Asset seizure – the DOR can seize business assets for unpaid taxes, including bank accounts, inventory, equipment, or anything else that your business owns. If you're a sole proprietorship or a general partnership, you are personally liable for the tax based on the structure of your business, and the state may go after your personal assets. 
• License revocation – the DOR can also take away your business licenses, preventing you from operating in the State of Illinois. Unpaid sales tax can also lead to loss of your liquor license if applicable.

These actions will typically happen a lot faster than they do for unpaid individual income tax. The state takes sales tax underpayments very seriously – after all, you collected that tax from customers, and you are supposed to pay it to the state. Don't be surprised if a state revenue officer shows up at your place of business if you have unpaid sales tax. 

Not paying your sales tax can force your business to shut down, but it can also impact you personally. Even if your business is an LLC or a corporation, you cannot walk away from this business debt. Illinois State law allows the DOR to hold you personally liable for unpaid sales tax. 

How to catch up on unpaid sales tax

Luckily, if you get behind, you have options, but you must be proactive. The longer you wait, the harder it can be to find a solution. Here are the main options to consider:

• Installment agreement – Illinois offers monthly payment plans to qualifying businesses and individuals. Depending on the situation, you may need to provide a financial disclosure. 
• Offer in compromise – The DOR will settle some tax debts for less than owed, but that can be very hard to do with sales tax, especially if your business is still in operation. An experienced tax pro will be able to let you know if this is an option for you. 
• Penalty abatement – if you incurred penalties for reasons out of your control – think fires, natural disasters, illnesses, or loss of records – you may qualify for penalty abatement. That can help to lower your total due so that you can get caught up more easily.

Voluntary disclosure for unpaid or unfiled taxes

If you're behind on your sales tax returns, you may be able to get back into compliance through Illinois's Voluntary Disclosure Program. To qualify, you must contact the DOR before they start an audit or investigation. The program allows you to avoid penalties for filing your returns voluntarily, but once you're approved, you must file all returns and make payments within 30 days (a 60 day extension may be available). 

Get help with Illinois sales tax problems.

You do not have to navigate this on your own. A skilled tax professional can help you get back into compliance with Illinois sales tax. They can also help if you're dealing with other business tax problems. 

Start your search on this page – select the IL DOR if you only want to see pros who have experience in this state. Then, you can narrow down your results even further so that you only see pros who have dedicated experience with IL sales tax, or you can even filter the results to look for professionals who have experience with the solution you want – for example, penalty abatement or monthly payment plans. 

• Illinois DOR tax pros
• Illinois enrolled agents
• Illinois CPAs
• Illinois tax attorneys

Don't wait – use TaxCure to find a tax professional today.