Illinois Business Taxes at a Glance
Illinois has a flat individual income tax, but its business tax system has features found almost nowhere else. Partnerships and S corporations pay a state replacement tax. Sales tax is technically a tax on the retailer, with sourcing rules that changed in 2025. Chicago adds taxes that reach cloud software and streaming services. BOMCAS helps Illinois businesses and residents manage these rules.
Individual Income Tax
Illinois taxes individual income at one flat rate. It starts from federal adjusted gross income and makes Illinois adjustments, including an important one for retirees: most retirement income, such as Social Security, qualified pension, and many retirement plan distributions, is not taxed by Illinois.
Illinois has reciprocal agreements with Iowa, Kentucky, Michigan, and Wisconsin, so residents of those states who work in Illinois generally pay tax only to their home state on wages, if they file the right exemption form with their employer. We prepare Illinois returns, apply retirement subtractions correctly, and handle nonresident and part-year filings.
Replacement Tax on Businesses
Illinois imposes a personal property replacement income tax, which replaced a tax on business personal property eliminated decades ago. Unlike most state taxes, it applies not only to C corporations but also to partnerships, S corporations, and trusts, at different rates. A partnership or S corporation can owe Illinois tax at the entity level even though its income also passes through to its owners.
Corporations pay both the corporate income tax and the replacement tax. Partnerships can reduce their replacement tax base for certain income distributed to partners subject to replacement tax. We prepare entity returns, calculate replacement tax, and apportion income for multistate businesses.
Illinois also offered an elective pass-through entity tax in recent years. Whether it is available for a given year depends on current law, so we confirm it before advising on the election.
Sales Tax: Retailers' Occupation Tax
What Illinois calls sales tax is mainly the Retailers' Occupation Tax, imposed on retailers, with use tax paid by buyers. Since January 1, 2025, remote retailers that ship into Illinois collect tax at the rate of the destination, including local taxes, much like Illinois retailers have to for in-state deliveries.
Two changes took effect in 2026. The state sales tax on groceries was eliminated, though many counties and cities can impose their own local grocery tax. And Illinois dropped its transaction-count threshold for remote sellers, keeping only the sales threshold.
We register businesses, track destination rates, prepare returns, and update grocery and food classifications in point-of-sale systems.
Chicago Taxes
Chicago imposes several taxes that matter to businesses inside and outside the city:
- Personal Property Lease Transaction Tax, which applies to leases of personal property in Chicago and has been applied to cloud software and nonpossessory computer leases
- Amusement tax, which has been applied to streaming services as well as live events
- Hotel and restaurant taxes, along with other excise taxes
Software providers, SaaS companies, and streaming platforms with customers in Chicago may need to collect these taxes. Chicago businesses also need to follow city paid leave rules. We help identify which Chicago taxes apply and register with the Department of Finance.
Payroll in Illinois
Illinois payroll involves state income tax withholding and unemployment insurance through the Illinois Department of Employment Security. Other requirements include:
- Illinois Secure Choice: employers with a minimum number of employees that do not offer a qualified retirement plan must register and facilitate payroll contributions to the state program
- Paid leave: Illinois requires paid leave for most workers, and Chicago and Cook County have their own ordinances
- Reciprocal-state employees: withholding for the home state when the employee files the exemption form
We set up payroll for these rules, file quarterly reports, and reconcile payroll to the books.
Illinois Estate Tax
Illinois is one of a minority of states with its own estate tax, and its exclusion amount is far lower than the federal exemption. Estates that owe no federal estate tax can still owe Illinois tax, and nonresidents who own Illinois real estate or business property may have Illinois filings too. Executors should check the Attorney General's estate tax guidance for current figures. We help executors gather values and records, coordinate with estate counsel, and prepare the decedent's final income tax returns and fiduciary returns.
Property Tax in Cook County and Beyond
Illinois property taxes are high and administered locally, with Cook County having its own assessment system and appeal process. Commercial property owners often review assessments with appeal counsel. Our role is accounting support: organizing income and expense data for real estate entities, tracking property tax payments, and preparing financial statements that support assessment reviews.
Trading Firms, SaaS, Manufacturers, and Restaurants
- Financial services and trading: multistate apportionment and replacement tax planning
- Software and SaaS: Chicago lease tax and multistate sales tax
- Manufacturing and logistics: inventory, fixed assets, and sourcing receipts
- Agriculture: farm reporting and sales tax exemptions
- Restaurants and hospitality: grocery and prepared food classifications, and Chicago taxes
Bookkeeping for Illinois Businesses
Illinois bookkeeping needs to separate sales by destination and by item type for ROT, track Chicago transactions for city taxes, and keep entity-level replacement tax records. We set up the chart of accounts and month-end close to provide each figure.
Next Steps With BOMCAS in Illinois
Partnerships calculating replacement tax, software companies with Chicago customers, and retailers adjusting to destination sourcing and the grocery tax change can contact BOMCAS for a remote review. Pages for individual Illinois cities and services will follow under this section. The BOMCAS home page and our United States services describe the rest of our work. This page is general and not advice on a particular return.
Talk to BOMCAS About Your Illinois Taxes
Have a question about your Illinois filings, payroll or bookkeeping? Contact BOMCAS or use the contact form below, and we will get back to you as soon as possible. You can also browse all United States services.