Sales tax on invoices in Illinois

In Illinois, a construction contractor owes no Retailers’ Occupation Tax on its receipts for labor and for the materials and fixtures it incorporates into a structure for an owner under a construction contract. It owes Use Tax on its own cost of that property instead. Appliances and other items that stay personal property are the exception: selling them is a retail sale, even under a construction contract.

Two taxes behind Illinois “sales tax”, and your registration

What Illinois calls sales tax is two complementary taxes: the Retailers’ Occupation Tax (ROT), on businesses selling tangible personal property at retail, and the Use Tax, on the privilege of using that property in Illinois. The retailer calculates ROT on its gross receipts and, in the same transaction, collects the use tax the customer owes, which in effect reimburses it.

If you sell, lease or rent tangible personal property at retail in Illinois, register as a retailer with the Illinois Department of Revenue (IDOR) through MyTax Illinois, using “Register a New Business (Form REG-1)”. IDOR issues a Certificate of Registration, which you need to make those sales.

Construction contracts under 130.1940: Use Tax on your cost

Illinois’ rule for construction contractors, 86 Ill. Adm. Code 130.1940, covers general contractors, subcontractors and specialized contractors such as landscape contractors. To construct includes to build, install, plant, repair, renovate or remodel, and a structure includes any building, any plumbing, heating, ventilating, refrigerating or air conditioning system, and any other improvement to real estate.

• Your contract receipts: no ROT on receipts from labor and from materials and fixtures incorporated into a structure as an integral part of it for an owner, when you furnish and install them as an incident of a construction contract.
• Your own tax: Use Tax on the cost price of the property you incorporate into real estate. Suppliers selling you building materials, fixtures and plants for conversion into real estate incur ROT on those sales, and the tools, equipment, fuel and supplies you use are taxable purchases too.
• Out-of-state purchases: property bought outside Illinois without ROT and used here for building still owes Use Tax, paid directly to IDOR. On and after January 1, 2025, an out-of-state retailer that maintains a place of business in Illinois should remit the state and local ROT on its sale to you, unless you’re also a retailer and elect to account for the tax yourself.
• Exempt owners: sales of materials to you for incorporation into real estate owned by exclusively charitable, religious or educational organizations, or by governmental bodies, are exempt from ROT and Use Tax. The exemption doesn’t reach real estate owned by a national or State-chartered bank or a savings and loan association, and your supplier keeps your certification that the purchases are for such a contract.

When an Illinois contractor is a retailer

A construction contractor incurs ROT when it:

• sells any tangible personal property without installation to purchasers for use or consumption;
• sells furniture and furnishings, curtains, drapes, trade fixtures and machinery, or floor covering it doesn’t cement or otherwise permanently affix; area rugs and floor coverings attached only with two-sided tape don’t count as affixed;
• sells, in finished form, gas or electric stoves, refrigerators, washing machines, portable ventilating units and similar portable equipment that remains personal property when installed, even if it installs them under a construction contract.

The construction part of the contract still carries no ROT. For the retail items, ROT is measured by the amount you charge for them, but not less than their cost to you, or by their cost if you make no separate charge.

Services: the service itself isn’t taxed

The service component of a sale of service is nontaxable in Illinois. Service Occupation Tax (SOT) applies only when a serviceperson transfers tangible personal property as part of the service, and IDOR’s FY 2026-13 bulletin gives four ways to calculate it:

• SOT on the separately stated selling price of the property transferred;
• SOT on 50% of the serviceperson’s entire bill;
• SOT on the serviceperson’s cost price, for a de minimis serviceperson registered or required to register under the Retailers’ Occupation Tax Act;
• Use Tax on the cost price, for a de minimis serviceperson not otherwise required to register.

Tax on your invoice: collecting use tax, and overcollection

Under section 3-45 of the Use Tax Act, retailers collect the use tax from users by adding it to the selling price of tangible personal property sold for use, as IDOR prescribes. That applies to a contractor’s retail sales above.

On the construction contract itself, 130.1940 puts your tax on your cost of materials, not on your receipts from the customer. Section 3-45 also covers overcollection: if a seller collects use tax measured by receipts that aren’t subject to it, or collects more than the tax due, the purchaser has a legal right to a refund from the seller, and if it isn’t refunded, the seller must pay that amount to IDOR.

Local taxes and where they’re sourced

Depending on the location, the rate can be higher than the state rate on this page because of home rule, non-home rule, mass transit, park district, county public safety, public facilities or transportation, and county school facility taxes. Local rates generally change twice a year, on January 1 and July 1, and local governments may impose taxes or fees that IDOR doesn’t collect.

• Sourcing: an Illinois retailer, with its inventory and headquarters generally in Illinois, collects state and local ROT at the origin rate; remote retailers collect at the destination rate.
• Northern Illinois Transit Authority: from August 1, 2026, the NITA occupation and use tax, formerly the Regional Transportation Authority’s, rose by 0.25% in Cook, DuPage, Kane, Lake, McHenry and Will counties.

Landscaping, plumbing, HVAC, electrical and roofing

• Landscaping: no ROT on receipts for labor and property a landscape contractor incorporates into real estate for an owner under a landscape contract, such as trees, shrubs, seedlings, sod and grass seed planted in the ground, with the fertilizer, mulch and soil worked in with them. Plants sold in pots or other containers without being planted in the ground aren’t treated as planted.
• Building systems: under a construction contract, no ROT applies to selling and installing plumbing systems or parts, such as bathtubs, sinks, faucets, water heaters, water softeners and water pipes; heating systems or parts, such as furnaces, boilers and heating pipes; ventilation and commercial refrigeration systems; electrical systems; roofing materials; and storm doors and windows and insulation. You owe Use Tax on their cost.
• Voice, data and security systems: a contract to improve real estate by engineering, installing and maintaining voice, data, video, security and telecommunication systems at one specified contract price incurs Use Tax, not ROT, on those items.