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Sales Tax Transaction and Exemptions - FAQs

The administrative code references listed below may be accessed at https://ilga.gov/agencies/JCAR/AdminCode on the Illinois General Assembly's website.

Sales — Certain transactions in Illinois are exempt from tax. 

PIO-101 - Illinois Sales & Use Tax Matrix

Commonly asked questions regarding sales tax transactions and exemptions can be found on this webpage.

Organizations — Qualified organizations, as determined by the department, are exempt from paying sales and use taxes on most purchases in Illinois. Upon approval, we issue each organization a sales tax exemption number (e-number). The organization must give this number to a merchant in order to make certain purchases tax‑free. More information is available on the PIO-37 webpage.

Common Questions about Sales Tax Transactions

What types of sales are exempt from tax?

The PIO-101, Illinois Sales & Use Tax Matrix, can be used to help determine taxability. This matrix covers a variety of topics including, but not limited to, coal and aggregate mining; computer software; construction contractors; credit card fees; drop shipments; items sold at an auction; items sold at a garage or yard sale; interstate commerce; leases of tangible personal property; machinery and equipment used for manufacturing; Medicare Part D prescription drugs; personal grooming and hygiene products; production agriculture; shipping and handling charges; sales of maintenance agreements or warranty contracts; photoprocessing services; and qualifying drugs and medical appliances. 

For additional information, refer to Sales Tax Exemptions - FAQs.

High Rate and Low Rate Sales Tax Questions

How do I know what rate of sales tax to charge on food?

To determine the rate of tax, see PIO-115, Tax Rate Information for Retail Sales of Food and Medicine. For detailed information on the tax treatment of food, see IDOR’s administrative rules at 86 Ill. Adm. Code 130.310.

What is the sales tax rate for soft drinks?

"Soft drink" is any non-alcoholic beverage containing natural or artificial sweeteners. This includes, but is not limited to, soda, sport or energy drinks, sweetened tea, waters containing natural or artificial sweeteners, beverages containing 50 percent or less fruits or vegetable juice, and all other preparations commonly known as soft drinks. "Soft drinks" are taxed as general merchandise (high rate).

"Soft drink" does not include any beverage containing milk or milk products, soy, rice or similar milk substitutes, unsweetened teas, drinks with greater than 50 percent of vegetable or fruit juice by volume, and carbonated or uncarbonated water that contains no natural or artificial sweeteners. These items are taxed as food (low rate).

See Illinois Administrative Code, Title 86, Section 130.310 for more details on qualifying and non-qualifying Food, Soft Drinks and Candy. In addition, the Chicago Home Rule Municipal Soft Drink Occupation Tax, administered by the Illinois Department of Revenue, is imposed on retailers of canned or bottled soft drinks in the city of Chicago. For more information, visit the Chicago Home Rule Municipal Soft Drink Retailers' Occupation Tax page.

Taxability Questions

For purposes of determining the selling price subject to sales tax, are incentives such as rebates, discounts, or coupons taxable?

In a retail transaction, incentives for retail purchasers, such as coupons, discounts, or rebates, are considered part of the selling price and subject to sales tax if the retailer receives reimbursement for offering the incentive, as with a manufacturer's rebate or an employee discount.

Incentives are not subject to sales tax if the retailer does not receive reimbursement for the cost of the incentive from any source.

See 86 Ill. Adm. Code 130.401 and 130.2125 for more information.

Is labor taxable?

Whether labor is subject to sales tax depends upon the circumstances under which the labor is performed:

  • If tangible personal property is not transferred, labor is not taxable.
  • If custom-made items are sold at retail, labor is taxable. See 86 Ill. Admin. Code Section 130.2140.

With regard to installation charges, labor charges that are contracted for separately from the selling price of the tangible personal property are not taxable. Labor charges that are a part of the selling price are taxable. See 86 Ill. Adm. Code Section 130.450.