The Illinois home rule sales tax is a local sales tax that home rule municipalities can add to retail sales of general merchandise inside their borders. It sits on top of the state’s 6.25% retailers’ occupation tax and any other local taxes, must be set in 0.25% increments, and has no state-imposed maximum rate. The revenue is collected by the Illinois Department of Revenue and returned to the municipality after a 2% administrative fee.
Which Municipalities Can Impose It
Under Article VII, Section 6 of the 1970 Illinois Constitution, any municipality with a population above 25,000 automatically has home rule status. Smaller communities can gain the same authority by voter referendum. Home rule status is what unlocks the power to enact this tax without waiting on the General Assembly for enabling legislation.
The specific taxing authority comes from two companion statutes: the Home Rule Municipal Retailers’ Occupation Tax Act at 65 ILCS 5/8-11-1, which covers retail sales of tangible personal property, and the Home Rule Municipal Service Occupation Tax Act at 65 ILCS 5/8-11-5, which covers service transactions where tangible property is transferred as part of the service.
Rate Structure and Why There’s No Cap
A home rule municipality sets its rate by ordinance, in quarter-percent (0.25%) increments. There is no maximum. That’s the single biggest distinction from non-home-rule local sales taxes, which are capped at 1%.1Illinois Department of Revenue. Home Rule and Non-Home Rule Sales Taxes In practice, most home rule rates fall between 0.25% and 2%, but nothing in state law prevents a higher figure.
What’s Taxed and What’s Exempt
The home rule tax applies to the same general merchandise base as the state’s 6.25% retailers’ occupation tax. Clothing, electronics, furniture, household goods, and most other tangible items sold at retail within the municipality are subject to the local rate, and shoppers see it as an additional line on the receipt.
Several categories are excluded by statute:
- Titled or registered property, including vehicles, watercraft, aircraft, trailers, and manufactured homes, because these items must be titled or registered with a state agency.2Illinois General Assembly. Illinois Municipal Code 65 ILCS 5/8-11-1
- Qualifying food for off-premises consumption, which is taxed at the state’s lower 1% rate and not subject to the home rule tax.3Illinois Department of Revenue. Local Governments’ Guide to Tax Allocations
- Prescription and over-the-counter drugs and qualifying medical appliances, which also fall under the lower state rate.3Illinois Department of Revenue. Local Governments’ Guide to Tax Allocations
- Aviation fuel, excluded since December 2019 unless the municipality dedicates the revenue to airport-related purposes.2Illinois General Assembly. Illinois Municipal Code 65 ILCS 5/8-11-1
One boundary worth noting: home rule municipalities can impose separate taxes on some excluded categories through different taxing authority, such as a home rule grocery tax. Those are distinct from the retailers’ occupation tax described here.
Which Municipality’s Rate Applies
Illinois uses destination-based sourcing. The rate charged is based on where the buyer receives the goods, not where the seller sits. If a retailer in one municipality ships to a customer in a different home rule municipality, the buyer’s home rule rate controls.4Illinois Department of Revenue. Destination-Based Sales Tax Assistance
This is why online purchases from out-of-state or out-of-town sellers are taxed at the buyer’s local rate. To look up the combined state and local rate for a specific address, the Illinois Department of Revenue provides the MyTax Illinois Tax Rate Finder.5Illinois Department of Revenue. Tax Rate Database
Remote Sellers and Marketplace Facilitators
Out-of-state retailers and marketplace facilitators such as Amazon, eBay, and Etsy must collect and remit Illinois home rule sales tax if they cross the state’s economic nexus threshold. As of January 1, 2026, the sole threshold is $100,000 or more in cumulative gross receipts from sales to Illinois purchasers during the preceding 12-month period. The previous alternative threshold of 200 separate transactions has been eliminated.6Illinois Department of Revenue. Destination-Based Retailers’ Occupation Tax Changes
Marketplace facilitators bear full responsibility for collecting and remitting both state and local retailers’ occupation taxes on sales they facilitate, including sales made by third-party sellers on their platform. The facilitator is treated as the retailer for tax purposes and is subject to audit on all such sales.7Cornell Law Institute. Illinois Admin Code Title 86 Section 131.145 – Marketplace Facilitators
Retailers who previously met the 200-transaction threshold but not the $100,000 revenue threshold should review their sales for the 12-month period ending December 31, 2025. If they fall below $100,000, they must stop remitting state and local retailers’ occupation tax on remote sales starting January 1, 2026.6Illinois Department of Revenue. Destination-Based Retailers’ Occupation Tax Changes Starting in 2026, if a retailer fails to provide enough information for the Department of Revenue to determine the correct destination, the department will assess tax on those sales at a flat 15% rate.4Illinois Department of Revenue. Destination-Based Sales Tax Assistance
How a New Tax Takes Effect
A home rule city council or village board imposes the tax by passing an ordinance. Voter approval is not required for the specific tax decision if the municipality already has home rule status. After adoption, the municipality must file a certified copy of the ordinance with the Illinois Department of Revenue by one of two annual deadlines:
- Filed by April 1: the tax takes effect July 1 of the same year.
- Filed by October 1: the tax takes effect January 1 of the following year.3Illinois Department of Revenue. Local Governments’ Guide to Tax Allocations
Missing either deadline pushes the effective date back by six months. An ordinance passed in May, for example, cannot take effect until the following January at the earliest.
How Retailers File and Pay
Retailers do not file a separate return for the home rule tax. They report it on Form ST-1, the Sales and Use Tax and E911 Surcharge Return, alongside the state tax and any other local taxes.8Illinois Department of Revenue. Sales and Use Tax Forms The combined amount is remitted to the state, which distributes the home rule share back to the municipality. No separate registration is needed; the standard certificate of registration under the Retailers’ Occupation Tax Act covers the home rule tax.2Illinois General Assembly. Illinois Municipal Code 65 ILCS 5/8-11-1
Filing frequency depends on average monthly tax liability:
- Monthly filing when average liability is greater than $200 per month.
- Quarterly filing when average liability is between $50 and $200 per month.
- Annual filing when average liability is under $50 per month.9Illinois Department of Revenue. ST-1 Instructions
The Department of Revenue sets and may change a retailer’s filing frequency based on reported liability. A growing business can expect to be moved from quarterly to monthly filing once its average crosses the $200 threshold.
Penalties for Late Filing or Payment
Because the home rule tax is reported on the ST-1 with all other Illinois sales taxes, the same penalty schedule applies. Late filing and late payment are penalized separately:
- Late filing, first tier: the lesser of $250 or 2% of the tax due, reduced by any timely payments already made.
- Late filing, second tier: if the return still isn’t filed within 30 days of a nonfiling notice, an additional penalty of the greater of $250 or 2% of the tax due, up to $5,000.
- Late payment, 1 to 30 days: 2% of the unpaid tax.
- Late payment, 31 days or more: 10% of the unpaid tax.
- Post-audit assessment: 15% of any amount not paid until after an audit begins, rising to 20% if not paid within 30 days of the audit’s conclusion.10Illinois Department of Revenue. Penalties and Interest for Illinois Taxes
Post-audit penalties are the sharpest. A retailer who collected the tax but failed to remit it can face a 20% penalty on top of the original tax owed, plus interest.
How the Revenue Reaches the Municipality
The Illinois Department of Revenue collects the home rule tax through the ST-1 process, retains a 2% administrative fee, and distributes the remainder to the municipality. There is always a lag between when a sale happens and when the local government receives its share. The municipality has no direct collection relationship with retailers; the state handles enforcement, auditing, and penalty assessment. That structure keeps compliance simple for businesses selling across jurisdictions, but it also means local officials rely on the state’s processing cycle for visibility into what individual retailers are paying.