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Services Subject to Sales Tax in Illinois

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In Illinois, unlike most other states, services are not generally taxable. This is despite the sales tax in Illinois including the Service Use Tax and the Service Occupation Tax (SOT).

The Illinois Department of Revenue website clearly states that it only imposes the Service Occupation Tax at 6.25% of the selling price of a tangible personal property transferred as sales of service.

How Does Service Occupation Tax Work?

If you offer services such as plumbing, dentistry, or repairing with which you qualify as a serviceman, you're required to calculate and remit the sales tax on the cost ratio to the tax department.

If the cost ratio is 35% or more, then you qualify to register and remit the Service Occupation Tax on the selling price. For the transfer of prescription drugs or production of graphic arts, the threshold is 75% or more. The SOT calculates as 6.25% of the selling price of the tangible personal property transferred as sales of service plus an additional local tax rate.

Further, the serviceman who owes Service Occupation Tax should issue Certificates of Resale to the suppliers in relation to the purchase of tangible personal property to be transferred to service customers. Failure to provide the resale certificate to suppliers shall incur a penalty and interest as it could lead to understating of the SOT.

As a whole, if you're in the business of providing sales of service, you're liable to file and pay SOT. So, if you sell internet services and you need to know if you must pay SOT, first determine if a transfer of tangible property exists to your clients concerning the internet services you're providing.

Plans to Tax Additional Services by the State Government

In 2017, the Illinois lawmakers made several proposals under SB 9 in a bid to extend the 6.25% sales tax rate on the selling price or market value of several services. The list of services for this sales tax in Illinois includes:

  • Laundry
  • Personal care services such as massage, tattooing, tanning, and manicuring
  • Landscaping
  • Storage
  • Repair and maintenance of the tangible personal property
  • Pest control services
  • Lastly, cable television, broadcast satellite service, and video and audio

A report by the Commission on Government Forecasting and Accountability (COGFA) pointed out that increasing the list of taxable services would increase revenues, possibly generating between $1.2B to $2.9B per year. However, when the issues were raised, there was strong opposition.

What You Need to Know About Sales Tax in Illinois

Knowing how complex the sales tax system can be, it's important as a business owner in Illinois to thoroughly review the type of services you offer. This is even if they don't fall under Service Occupation Tax.

For instance, anyone providing telecommunication services is subject to the Telecommunications Excise Tax Act (TETA). Taxable telecommunication services include:

  • Channel services
  • Messages or information communicated via toll, local or wide area telephone services
  • Computer exchange services
  • Private line services
  • Lastly, cellular mobile services

If you have a tax liability of more than $1,000 per month, then you need to file and pay returns electronically. You will use Form RT-2, which can be submitted quarterly, monthly, or yearly depending on your monthly liability. For any amendments, you can use Form RT-2-X.

Understand Your Sales and Use Tax Obligations

It's good to be certain about the taxability of the services you offer. Always consider the possibility of the state changing the sales tax rules, including expanding the list of services offered. Meanwhile, consider what services you sell that are liable to Service Occupation Tax to avoid getting into trouble.

At Sales Tax Helper, we offer a free consultation. That way you know where your business stands with sales tax in Illinois. We will ensure that you never have to worry about missing your tax obligations. Get in touch with us today.