Could an exempt private school's student coffee shop sell only to students and faculty without Illinois Retailers' Occupation Tax?

Plain-English summary

The student coffee shop might fit Illinois's limited exception for exempt-organization sales to members because the school proposed selling only to students and faculty. The Department did not issue a specific ruling that it qualified.

An E-number generally did not exempt an organization's own retail sales. Exempt organizations remained subject to Retailers' Occupation Tax unless a limited exception applied.

The GIL identified three exceptions: sales to members, noncompetitive sales, and certain occasional dinners and similar activities. Based on the stated audience, the Department said the school appeared potentially within the members exception.

What this means for you

An educational purpose and nonprofit status are not enough by themselves. Document exactly who can buy, whether sales extend to the public, and which Section 130.2005 exception is claimed.

Common questions

Q: Did the school's E-number automatically exempt coffee-shop sales?
A: No. The GIL said exempt organizations generally owed tax on their own retail sales.

Q: Did the Department conclusively approve the student coffee shop?
A: No. It said the facts appeared potentially within the members exception.

Citations and references

• 86 Ill. Adm. Code 130.101
• 86 Ill. Adm. Code 130.2005(a)(2) through (a)(4)
• 2 Ill. Adm. Code 1200.110 and 1200.120

Subject

Exempt Organizations

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0020.pdf

Original ruling text

ST 10-0020-GIL 03/19/2010 EXEMPT ORGANIZATIONS
Exclusively religious, educational, or charitable organizations that have an exemption number
issued by the Department are allowed to engage in a very limited amount of retail selling
without incurring Retailers' Occupation Tax liability. See 86 Ill. Adm. Code 130.2005. (This is a
GIL.)

March 19, 2010

Dear Xxxxx:
This letter is in response to your letter dated October 21, 2009, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
I am a teacher at SCHOOL, a non-profit private school. We have 501(c)(3) federal tax
status and have been assigned an ‘e’ number as a non-profit in the State of Illinois.
My question requires a little background. This year we have started a new class called
‘NAME’. Students are learning about owning and operating a business of their own.
They will learn management skills, marketing, sales and accounting. As a part of the
class, the students have decided that they would like to put into practice some of the
things they are learning. They plan to mirror a business within our school. They will set
up a coffee shop within our building and sell to other students and faculty coffee, juice,
muffins one hour before and one hour after school each day. Funds raised will be used
to replenish supplies and enhancement of the class project. They are not in business to
make a profit, employ anyone or to sell outside of our school family. This is an
educational project.
My question is, do we need to charge sales tax and file quarterly sales tax returns?
If you have any questions, please call me on my cell phone, or leave a message at the
school.

DEPARTMENT’S RESPONSE:
Although we cannot give you a specific answer in the form of a General Information Letter, we
hope you find the following helpful.
The Illinois Retailers’ Occupation Tax is imposed upon the total gross receipts received by
retailers who make sales of tangible personal property to Illinois end users. Unless the sales are
specifically exempted, such retailers must collect and remit the sales tax. See 86 Ill. Adm. Code
130.101.
While organizations that have received an “E” number are, as a general matter, subject to
Retailers’ Occupation Tax upon their own sales of tangible personal property, there are three limited
exceptions where such organizations are authorized to engage in a restricted amount of retail selling
activity without incurring Retailers' Occupation Tax liability. Organizations that hold exemption
numbers may engage in (1) sales to members, etc., (2) noncompetitive sales, and (3) certain
occasional dinners and similar activities, without incurring Retailers' Occupation Tax liability. See 86
Ill. Adm. Code Sections 130.2005(a)(2) through 130.2005(a)(4).
If your school only sells to students and faculty, it appears you may fall within the exception for
sales limited to members, etc.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Debra M. Boggess
Associate Counsel
DMB:msk