Illinois’ combined state and local sales tax highest among neighbors, 8th in country

[February 26, 2022]  By Scot Bertram

(The Center Square) – Combined state and local sales taxes in Illinois rank among the highest in the country, according to new research by the Tax Foundation.

The report looked at a population-weighted average of local taxes in addition to the statewide rate of 6.25%. Illinois’ combined rate of 8.81% ranked 8th in the country.

“It's primarily due to the local rates,” said Katherine Loughead, senior policy analyst with the Tax Foundation. “If you look at the state rate alone, it’s still above average, but it's not quite as high. Illinois’ state rate of 6.25% is the 13th highest.”

No state sales tax rates have changed in the U.S. since Utah increased its rate in 2019. That means most of the movement on the list comes from local municipalities making adjustments.

“The really high rate in Chicago of 10.25%, that's weighted heavily,” Loughead said. “Some of the less densely-populated areas of the state are the ones that have slightly lower rates across the board.”

Illinois’ combined rate is also higher than all neighboring states, which could lead shoppers to slip across the border for purchases.

“Wisconsin has one of the lowest sales tax rates in the country,” Loughead said. “Indiana, Iowa, Missouri, and Kentucky all have lower combined rates as well. Really anywhere along those borders, there's a pretty strong incentive to shop across state lines.”

Loughead said with so many population centers like Chicago, Rockford, and Moline located on or near a border, Illinois likely is losing revenue to surrounding states.
 

“It's definitely easier for people to cross state lines and I'm sure a fair amount of that activity is happening,” Loughead said. “It would make sense for Illinois to look at trying to find ways to make those rates more competitive and then for the high tax regions within Illinois, like Chicago, to look for ways to get that rate lower than it is right now.”

Louisiana and Tennessee have the highest average combined state and local tax rates in the country at around 9.5%. Five states, Alaska, Delaware, Montana, New Hampshire, and Oregon, do not have a statewide sales tax.