For entrepreneurs evaluating Illinois as a business location in 2026, the tax landscape is a key factor. With a state sales tax of 6.25% and potential local additions of up to 5.25%, the combined rate can reach 11.50%.
Economic Nexus in Illinois
Remote sellers must collect Illinois sales tax if they exceed $100,000 in annual sales or 200 transactions within the state. This threshold has been in effect since 2021-01-01. Marketplace facilitators like Amazon and Etsy are also required to collect and remit tax on behalf of third-party sellers. The Illinois Department of Revenue enforces these provisions and provides registration guidance at https://tax.illinois.gov.
LLC Formation in Illinois (2026)
Forming an LLC in Illinois costs $150 for the initial filing. An annual franchise tax of $75 is required to maintain good standing. The annual report fee is $75. Illinois imposes a state income tax, which affects pass-through LLC taxation.
The process involves filing Articles of Organization with the Secretary of State, obtaining a federal EIN, and registering for applicable state tax accounts. You will also need a sales tax permit from the Illinois Department of Revenue.
Key Tax Rules
• Illinois has a 6.25% state sales tax; groceries and drugs are taxed at 1%.
• Local taxes can add up to 5.25% in some jurisdictions.
• Retailers' Occupation Tax is the primary sales tax mechanism.
• Economic nexus threshold: $100,000 in sales or 200 transactions.
Sales Tax Exemptions
The following categories are generally exempt from sales tax in Illinois: groceries (1% rate), prescription drugs, medical appliances. Businesses should maintain proper documentation for exempt transactions.