Illinois, ‘land of Lincoln’ achieved statehood in 1818, today it is the 5th most populous state in the United Stated, with more than 12.9-million residents, and is also the 25th largest state in terms of land area at 57,914 square miles. Four U.S. presidents have resided in Illinois, Ronald Reagan (Tampico), Abraham Lincoln (Springfield), Ulysses S. Grant (Geneva), and Barack Obama (Chicago); of these only President Regan was not living in Illinois when elected. Since 1905, Illinois has honored Lincoln with its official state slogan, Land of Lincoln; and his Presidential Library and Museum is located in Springfield which is also the Capital of the state. Perhaps as even a greater tribute to Lincoln, Illinois was the first state to ratify his focal legislation, the 13th Amendment to the Constitution, which abolished slavery.
The largest population center in Illinois is the Chicago area (more specifically the Chicago metropolitan statistical area), but indeed Chicago is also the state’s largest city, and the 3rd largest city in the United States. By 1870 Chicago had grown to become the 2nd largest city in the U.S.; however, most of the city burned in the Great Chicago Fire of 1871. While most believe that Chicago’s nickname ‘the Windy City’ stems from notorious weather the city encounters as a result of its Lake Michigan proximity, it actually refers to the city’s reputation of boastfulness, starting from its competition to host the World’s Fair in 1893, and it’s political climate. Despite the fact that the soft swampy land near Lake Michigan provided unstable ground for tall buildings, innovative builders soon invented steel framed structures anchored by concrete piers and the result was the birth of the skyscraper. Today, the Chicago’s Sears Tower is the tallest building in North America. Chicago also happens to be home to the largest ‘Public Library’ in the world, containing more than 2 million books.
Among Illinois firsts are ‘the aquarium’, “McDonald’s”, round grain silos, and the first sustained nuclear chain reaction in 1942, and in 1957 the first nuclear power plant. In fact Illinois has more electricity generated from nuclear power than anywhere else in the US, with a total of 11 power plants operating.
Railroads made Chicago a major transportation hub in the United States, and as a result, the Chicago (Union) Stock Yards were, at one time, the largest in the world, during which Chicago was a leader in meat processing as beef and hog producers shipped their stock via the railroad. Illinois continues to be a major agricultural state with corn, soybeans, wheat and dairy as the major commodities. Speaking of commodities, Chicago is also home to the ‘Chicago Board of Trade’ which is the world’s oldest futures exchange having been established in 1848. In addition to these agricultural commodities, Illinois is a major producer of coal, timber and petroleum.
While rail was once the great transportation influence of Illinois, it was the most recent. From 1962 until 1998, Chicago’s O’Hare International Airport was the busiest airport in the world in terms of both number of flights, and passengers passing through the airport.
In 1919, the 18th amendment of the Constitution was ratified thus making the sale of alcoholic beverages illegal in the United States. That law ushered in the ‘Gangster Era’ which saw the likes of Johnny Torrio, Dion O’Banion, Bugs Moran and Al Capone come to power, and resulted in one of the most notorious gangland hits, the St. Valentine’s Day Massacre in 1929. Two years later Al Capone, the benefactor of the massacre was sentenced to federal prison, and two years after than Prohibition (the 18th amendment) was repealed. I seriously doubt that Al Capone ever bothered to collect ‘sales tax’ on his bootlegged Canadian whiskey.
About Sales Taxes and this series:
Thanks to Avalara, the 'tax people', this article is one in a 50 part series covering sales tax issues associated with each and every state tax jurisdiction in the United States. We’re publishing "Sales Tax Tuesday" every week through 2015.
Sales tax provides critical revenue for states. Other than property and income tax, sales tax is the largest source of tax revenue in the majority of the 46 states that collect it. From a government perspective, making sure every sales tax dollar is collected, through audits, fines, penalties rates and rules, is an exercise for income. It’s easy to be lured into a false sense of compliance when it comes to sales tax, this series is intended to insure that you are aware of the key sales tax facts for YOUR state.
Note: For sales tax definitions and essentials check out the opening article to this series.
Sales Tax Facts1:
- There are two state sales tax rates: 6.25% for “General Merchandise" and 1% for “Qualifying food, drugs, and medical appliances”; however, the general rate can be as high as 9.75% when combined with county and local taxes.
- The Illinois Department of Revenue administers Sales and Use Tax within the state.
- Illinois defines “Sales tax” as being is imposed on a seller’s receipts from sales of tangible personal property for use or consumption. Tangible personal property does not include real estate, stocks, bonds, or other “paper” assets representing an interest.
- “General merchandise” includes sales of most tangible personal property including sales of soft drinks and candy; prepared food such as food purchased at a restaurant; photo processing (getting pictures developed); prewritten and “canned” computer software; prepaid telephone calling cards and other prepaid telephone calling arrangements; repair parts and other items transferred or sold in conjunction with providing a service under certain circumstances based on the actual selling price; and grooming and hygiene products.
- “Qualifying food, drugs, and medical appliances” include food that has not been prepared for immediate consumption, such as most food sold at grocery stores, excluding hot foods, alcoholic beverages, candy, and soft drinks; prescription medicines and nonprescription items claimed to have medicinal value, such as aspirin, cough medicine, and medicated hand lotion, excluding grooming and hygiene products; and prescription and nonprescription medical appliances that directly replace a malfunctioning part of the human body, such as corrective eyewear, contact lenses, prostheses, insulin syringes, and dentures.
- Illinois has more units of government than any other state—more than six thousand cities, counties, townships, etc. And it has 102 counties. The average for a U.S. state is 62. This makes sales tax especially complicated when it comes to calculating accurate sales tax rates based on taxing jurisdiction.
- Illinois is one of only 11 origin sourcing states. This means that sales tax is based on the location of the seller, not the buyer.
- Illinois is not a member of Streamlined Sales Tax (SST)
- Illinois sales tax applies almost exclusively to goods. In fact, only five services apply sales tax in Illinois. For U.S. states that collect sales tax, the average is 51 services.
- A recent policy study showed that if Illinois lawmakers extended sales tax to more services, it would generate $2.1 billion in revenue for the state (currently facing a $6.2 billion budget shortfall) and $526 million for local governments.
Did you know?
- Pop up sale. In February, Illinois introduced the Healthy Eating Active Living (HEAL) Act, which looks to impose an additional state-wide tax on distributors of bottled sugar-sweetened beverages sold for sale to retailer for sale to a customer. Chicago already imposes a similar tax. Opposition from the Illinois Beverage Association isn’t enough to fizzle out the possibility of the tax which has the support of more than 25 organizations, although there’s still a cap on any formal decision from lawmakers.
- That’s entertainment! Digital content came under fire recently in Chicago. On July 1, the city extended its 9% amusement tax to include paid media content delivered electronically including television shows, movies, videos music and games. The tax does not include sales of these items, only to rentals through streaming or temporary downloads.
- Not so sweet deal. Craving candy? You may not be able to cut the calories in that sweet treat, but you might be able to cut the price. By Illinois tax law, if the item contains flour, then it’s only taxed at the 1% food rate; no flour and you’ll pay the additional tax imposed on candy. (Here you are looking for candy bars with 'wheat' in them - like a Twix for example, as opposed to a Hershey bar.) Other states that makes similar sticky rules around candy tax include: Washington, Colorado and Connecticut.
Manual sales and use tax management, no matter what the particulars or persuasions, is prone to error and consumes valuable time in pass-through rather than revenue-generating activities. Remember, Illinois has more tax jurisdictions than any other state in the U.S., but no matter how many cities, counties or sales tax jurisdictions you collect and remit tax for, Avalara provides solutions for sales tax automation, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting.
So whether you have a hard time figuring if you are providing a taxable service, or are selling 'general' or 'qualifying' candy bars, you won't have a worry when it comes to compliance because automation of your business sales tax, thru integration of QuickBooks with AvaTax, will insure that your business is fully sales tax compliant without sacrificing your operation's productivity.
1 - State by State Sales Tax - Illinois, Avalara – July 13, 2015