Are services taxable in Illinois?

What Illinois actually taxes

The Retailers' Occupation Tax applies to selling tangible personal property at retail. The statewide rate is 6.25 percent on general merchandise, with a reduced 1 percent rate on qualifying drugs and medical appliances, and local and home-rule taxes stack on top, so the combined rate depends on where the sale happens. The Department of Revenue publishes a Tax Rate Finder for the rate at a specific address. If your business sells goods to end customers in Illinois, this is your tax, and registering, collecting, and remitting it is part of the operation. Our business taxes page covers the registration and calendar side.

The service portion is not taxable

When a customer pays you for a service, the service portion of the charge is not taxable. The plumber's labor, the photographer's session, the consultant's analysis: none of it is a retail sale of property. This is why service businesses in Illinois generally do not add sales tax to their invoices, and why a service-only freelancer with no employees and no taxable sales generally does not even need an Illinois business tax registration. Your income from services is taxed as income, federal and state, but it is not subject to sales tax. Owners who move here from states that tax services broadly, and owners who assume Illinois must work the same way, are pleasantly surprised. Owners who assume the reverse and collect tax they do not owe create a different problem, because tax collected has to be remitted whether it was owed or not.

The exception: property transferred as part of a service

The line blurs when a service includes transferring tangible property to the customer. Illinois handles that through the Service Occupation Tax. If you repair a machine and install parts, design a space and supply materials, or print the documents you drafted, the property that changes hands may be taxed under this companion tax, generally measured by the cost of the property transferred rather than the full service bill. The details depend on the kind of service and how you bill it, and the Department of Revenue publishes guidance by industry. The practical habit is simple: know whether your service hands the customer goods, and if it does, read the guidance for your trade before your first invoice rather than your first audit.

Leasing is now a retail sale

One recent change catches service-adjacent businesses off guard. Since January 1, 2025, businesses that lease or rent tangible property are treated as retailers for Illinois sales tax purposes. Renting out equipment, furniture, or other property is no longer outside the tax merely because nothing is sold. If your business model includes renting property to customers, the rental receipts fall under the occupation tax framework. Owners who built rental income assuming the old treatment should revisit their registration and collection setup.

Selling through marketplaces, and selling from out of state

If you sell goods through a marketplace such as Amazon or Etsy, the marketplace generally collects and remits Illinois tax on those sales under the marketplace facilitator rules. Sales through your own website or in person remain your responsibility. For sellers outside Illinois, the remote seller rule is now a single test: since January 1, 2026, $100,000 in gross receipts from Illinois sales over the lookback period triggers the obligation. The old 200-transaction test is gone. Cross the dollar threshold and Illinois expects registration and collection even with no physical presence here.

The working rules

Sell only services, transfer no goods: no sales tax, and usually no sales tax registration. Sell goods at retail: register, collect, remit. Provide services that transfer goods: look at the Service Occupation Tax for your trade. Rent property out: you are a retailer now. Sell into Illinois from elsewhere: watch the $100,000 line. When a business does several of these at once, the answer is a combination, and that combination is worth an accountant's hour before the first filing season rather than after a notice arrives.