Illinois has the eighth-highest combined state and local sales tax in the nation at 8.98%, according to a new analysis from the Tax Foundation published by the Illinois Policy Institute. That rate is the highest in the Midwest and will climb even further in Chicago when a transit tax increase takes effect Aug. 1. For more than a decade, Illinois has ranked among the country's least competitive states for sales taxation, and the state last fell outside the top 10 highest rates in 2013.
The data shows stark contrasts with neighboring states, according to the report. Missouri has the highest combined average rate among states that border Illinois, but it still sits more than half a percentage point below Illinois' rate. Wisconsin's combined average rate stands at 5.72%, while Kentucky's reaches 6%. Chicago currently imposes a combined sales tax of 10.25%, made up of four components: a 6.25% statewide levy, 1.25% city tax, 1.75% Cook County tax, and 1% Regional Transportation Authority tax. When the RTA tax rises to 1.25% on Aug. 1 as part of the transit bailout creating the Northern Illinois Transit Authority, Chicago's total rate will hit 10.5%, ranking among the highest for major cities nationwide. Although Illinois ended its 1% grocery tax on Jan. 1, more than half of local governments across the state still maintain their own grocery taxes.
The report finds that Illinois' position as the regional sales tax leader pushes residents toward making large purchases in states with lower rates. According to the analysis, while cross-border shopping isn't practical for all residents, those living near state lines can achieve substantial savings by spending their money outside Illinois. The report also notes that certain activities in Chicago face even steeper taxation—diners at downtown restaurants must pay both Chicago's restaurant tax and the Metropolitan Pier & Exposition Authority's food and beverage tax on top of standard state and local sales taxes.
The report explains that elevated sales taxes prove especially damaging to Illinois small businesses, which typically operate with thinner profit margins than large national corporations and therefore have less capacity to absorb tax costs. Even when a mom-and-pop shop passes the full tax burden to customers, the resulting higher prices make the business less appealing to shoppers. Illinois already carries one of the nation's highest state and local tax burdens overall, with the third-highest corporate income tax and a tax code that ranks among the Midwest's least business-friendly.
Rising local sales taxes add to the cost of living for working Illinois residents at a time when climbing prices are becoming a growing worry statewide, the report concludes. Chicago's impending rate increase will cement the city's status as one of the country's most expensive places to shop, while the state's sustained position near the top of national rankings continues to drive consumer dollars across state lines. For Illinois policymakers, the data presents a clear competitive disadvantage that touches both businesses struggling with narrow margins and families watching every dollar stretch less far.