Illinois continues to refine its sales and use tax landscape, and 2026 brings several important changes that remote sellers, marketplace facilitators, and Chicago‑focused businesses cannot afford to miss. While local jurisdictions in Illinois still do not set their own economic nexus thresholds, new destination‑sourcing rules, the elimination of the 200‑transaction test, and an aggressive 15 percent “undetermined” destination rate significantly raise the compliance stakes for anyone selling into the state. At the same time, Chicago maintains its own Wayfair‑style nexus framework for city‑administered taxes and has increased its Personal Property Lease Transaction Tax rate, making it more critical than ever to understand how state‑level nexus interacts with local sourcing and Chicago‑specific rules.

Illinois Nexus Rules for Sales & Use Tax

Illinois has statewide nexus rules along with local jurisdictions’ separate nexus requirements. A local jurisdiction’s rules matter as much as the state rules because Illinois is a destination‑sourcing state for remote sellers and marketplace facilitators. Once a seller has nexus with Illinois, they must collect state and local sales tax, depending on where the customer receives the product [Public Act 104-0006; FY 2026-12, Destination-Based Retailers’ Occupation Tax Changes].

While Illinois nexus rules centralize at the state level, remote sellers still use destination sourcing and marketplace facilitators remain responsible for collecting local ROT when they meet the statewide threshold.

Illinois Rule on Economic Nexus

A remote seller or marketplace facilitator must collect Illinois sales tax if, in the previous 12 months, they have either $100,000 in Illinois sales, or 200 separate Illinois transactions. However, Illinois published a bulletin listing local sales tax rate changes for 2026.  These include new local taxes imposed by certain jurisdictions and ate increases in others. Effective January 1, 2026, Illinois eliminated the 200‑transaction threshold, leaving only $100,000 in Illinois sales threshold required to meet economic nexus [IL FY 2026-10-A Bulletin]

Local Jurisdictional Nexus in Illinois

Illinois requires that remote sellers with economic nexus collect state and local Retailers’ Occupation Tax (ROT) at the destination rate. Local jurisdictions (cities, counties, special districts) do not set their own nexus thresholds. Instead, once a seller has nexus with the state, they must collect all applicable local taxes based on where the product is delivered. Therefore, remote sellers should determine the correct local tax rate for each delivery address and report the sales transactions.

Origin Sourcing verses Destination Sourcing in Illinois

Sourcing transactions in Illinois may change based on facts of the business. For example, when a business meets physical presence nexus in the state, companies should consider what rates to apply based on the origin of the transaction. Sales occurring within the state must use the effective rates of the seller’s location (86 Ill. Adm. Code 270.115). If the item or items are shipped from Illinois to another destination in the state, or if an Illinois buyer picks up the items sold from the Illinois place of business, the origin rate would apply (35 Ill. Comp. Stat. sec. 120/2-12).

However, remote sourcing rules for Illinois require that sales sourced outside of Illinois to use destination‑based sourcing when an Illinois company maintains a place of business outside of the state, and they make sales from a location outside Illinois-to-Illinois customers (86 Ill. Adm. Code 270.115; Illinois S.B. 3362).

Chicago, Illinois and Illinois Sales Tax

Chicago municipal taxes have their own standards for reporting. Pursuant to the City of Chicago Information Bulletin on Nexus and Safe Harbor, Chicago applies its own post‑Wayfair nexus analysis to determine whether a business is “purposefully availing itself” of doing business in Chicago for Chicago municipal taxes. Chicago applies a Wayfair‑style economic nexus analysis for its own taxes. Nexus is determined using a “purposeful availment” standard to determine nexus, and rules apply to Chicago‑administered taxes rather than economic thresholds. “Purposeful availment” considers the volume of Chicago customers, marketing directed at Chicago, contracts with Chicago residents, and delivery of services used in Chicago [City Of Chicago Information Bulletin – Nexus and Safe Harbor Iss. January 21, 2021].

Significant increase in the obscure PPLTT – or “SaaS Tax” as of 1/1/26

A final jurisdictional change to note for 2026 is the Personal Property Lease Transaction Tax (PPLTT). This tax is imposed on the lease or rental of personal property within the city of Chicago. The most current tax rate as of January 2025 is 11% for most leases, but increased to 15% starting January 1, 2026. This is significant because it affects SaaS and other software companies directly. Chicago views the use of software as the rental of personal property and applies this tax to such companies. While the tax can be assessed to customers, many companies are unaware of the tax at all and end up having to bear the tax on prior sales. The tax has steadily increased in recent years and apparently, Chicago shows no sign of slowing it down!  Click here for our interactive SaaS map:  https://milesconsultinggroup.com/saas-sales-tax-by-state-map/

Please reach out to us at info@milesconsultinggroup.com if you have questions or these changes might affect your business!