How did Illinois treat children's salon parties and spa packages that bundled services with small giveaways, retail add-ons, and invitations?

Plain-English summary

Illinois said the children's salon's proposed treatment appeared consistent with the general Service Occupation Tax and Retailers' Occupation Tax procedures described in the GIL. It did not issue the requested binding PLR.

The salon sold haircuts, spa packages, and themed parties that included services and low-cost property such as tiaras, certificates, pictures, rings, plates, and forks. Under the historical registered de minimis serviceman method, Service Occupation Tax could be based on the cost price of tangible property transferred with the service when the annual cost ratio met the rule. The GIL described a 35% threshold for most servicemen and noted hair stylists as an example.

Separately sold tangible party add-ons remained retail sales under the requester's analysis that the Department said appeared to conform. For personalized printing, the Department used a general-utility test: a specially ordered item that could not be sold to someone else at substantially the same price was not subject to Retailers' Occupation Tax, but generally fell under Service Occupation or Use Tax methods.

What this means for you

Separate the service package from true retail add-ons and calculate the property-cost ratio annually. For customized printing, ask whether the finished item has meaningful value to another buyer.

Common questions

Q: Did small giveaways automatically make the full party fee a retail sale?
A: No. The GIL described service-tax methods for property transferred incident to services.

Q: Were personalized invitations automatically retail sales?
A: No. The GIL applied the printing rule's general-utility test and pointed to service or use tax for nonstandard items.

Citations and references

• 86 Ill. Adm. Code 130.2000
• 86 Ill. Adm. Code 140.101 through 140.109
• 86 Ill. Adm. Code 140.106, 140.108, and 140.109
• 2 Ill. Adm. Code 1200.110(a)(3)(D) and (a)(4)

Subject

Service Occupation Tax

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-10-0024.pdf

Original ruling text

ST 10-0024-GIL 03/30/2010 SERVICE OCCUPATION TAX
The Service Occupation Tax is a tax imposed upon servicemen engaged in the business of
making sales of service in this State, based on the tangible personal property transferred
incident to sales of service. See 86 Ill. Adm. Code Part 140. (This is a GIL.)

March 30, 2010

Dear Xxxxx:
This letter is in response to your letter dated July 24, 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:
On behalf of our client, COMPANY, we respectfully request the Illinois Department of
Revenue to issue a Private Letter Ruling pursuant to 2 Ill. Adm. Code 1200.110 with
respect to the following factual situation.
General Information
1.

Enclosed please find an original Form IL-2848, Power of Attorney, authorizing
FIRM to represent the Company before the Illinois Department of Revenue (the
‘Department’).

2.

This Private Letter Ruling (‘PLR’) is not requested with regard to a hypothetical or
alternative proposed transactions [sic]. This PLR is requested to determine the
Retailers' Occupation Tax (‘ROT’), Use Tax (‘UT’), Service Occupation Tax
(‘SOT’) and Service Use Tax (‘SUT’) consequences of the actual business
practices of the Company.

3.

The Company is not currently engaged in litigation with the Department in regard
to this or any other tax matter.

4.

The Company is not currently under audit by the Department in regard to this or
any other tax matter.

5.

To the best knowledge of the Company’s personnel, the Department has not
previously ruled regarding this matter for the Company, nor has the Company
submitted a request for a ruling on the same or similar issues to the Department.

6.

The Company requests that its name and address be deleted from the PLR prior
to publication or dissemination to others.

7.

The Company knows of no authority contrary to the authorities referred to and
cited herein.

Statement of Material Fact
The Company operates children’s hair salons in Illinois. The salons offer various
services, parties, and sales of merchandise at retail. The Company is currently
registered to collect and remit sales tax in Illinois. Revenue is derived from the following
activities:
1.

Haircuts – The salon offers standard haircuts to young boys and girls.

2.

Spa Packages – These can include a shampoo, haircut, style, party up-do,
manicure, pedicure, nail polish, nail art, and a ring.

3.

Parties – The Company offers various themed parties. Typically, the girls will
have their hair styled, nails polished, and some make-up applied. The girls will
dress up in costumes and engage in various activities depending on the theme of
the party. They also receive various items related to the theme. For example,
girls at the Princess Party will receive a tiara, princess certificate, and a picture.
The cost of the items given away does not exceed 35% of the amount charged
for the party. Food is not provided but parents are allowed to bring cake to the
parties. The store will typically supply plates and forks at no charge. The price
per party is based on a flat fee inclusive of all give aways and provides for a
limited number of guests. Additional guests can be added for a fee per child.

4.

Party Additions – Various items can be added to the party package. Add-ons
can include a shirt, tiaras, sunglasses, DVDs, frames, flip-flops, lotion, candy,
and/or limo service. Party additions are separately stated on the sales receipt.

5.

Invitations – Various invitations related to the theme of the party are offered. The
invitations are printed out in the store with the information of the birthday girl and
party date.

6.

Retail Sales – The Company sells hair products and miscellaneous merchandise
at retail.

For all services where tangible personal property is transferred, the cost of the property
is less than 35% of the amount charged for the service. This includes items which are
included in the parties. Sample receipts have been attached for your reference.
Request for Ruling

Based on the material facts, we respectfully request a response to the following
questions:
1.

What are the sales tax consequences of the flat rate charged for the parties and
spa packages where tangible personal property is transferred along with the
service?

2.

Would the above listed ‘Party Additions’ affect the tax treatment of the parties?

3.

What are the tax consequences of invitation printing services?

Relevant Authorities and Discussion
1.

Based upon the following authority, it is our understanding that the parties and
spa packages would be considered a service and the Company incurs and must
remit SOT on the cost price of tangible personal property transferred incident to
the sale of the service. The tax liability would be reported on Form ST-1 by
including the total receipts for the party on Line 1. All amounts excluding the cost
price of tangible personal property would be deducted on Line 2. The taxable
receipts would appear on Line 3 along with taxable receipts from sales at retail.
Our understanding is based on 86 Ill. Admin Code §140.109. The regulation
provides that a de minimus serviceman that is registered as a retailer under the
ROT will incur Service Occupation Tax on the cost price of tangible personal
property transferred incident to sales of service. The Company meets the
definition of a de minimus serviceman because the cost price of tangible
personal property transferred with the parties is below 35%. As noted above, the
Company is already registered as a retailer with the Department. The regulation
further provides that de minimus servicemen include ‘hair stylists transferring hair
products incident to service and also making over-the-counter sales of shampoo
and other hair care products.’ 86 Ill. Adm. Code §140.109(a).

2.

It is our understanding that because the party additions are separately itemized
on the invoice, additions that constitute tangible personal property would be
subject to ROT and would not affect the sales tax treatment of the other invoice
items.

3.

With regard to the invitations, Reg. 130.1995(b)(1) identifies items such as
personalized business cards, greeting cards, letterhead, and the like as not
subject to ROT because the items have no commercial value for the customers.
The Company believes the personalized invitations would be treated similarly
because there is no commercial value to the invitations and they become
worthless after the party is over. Additionally, the Company believes the
guidance offered in Private Letter Ruling ST 99-0035-PLR, which deals with
customized checks, would be applicable to the Company’s situation.
It is our understanding that the printing of the invitations is considered a service
and, as such, subject to SOT in Illinois. All materials purchased in relation to the
invitations should be purchased with a resale certificate and then taxed under the
SOT.

We respectfully request that the Department issue a ruling on the aforementioned
questions. If the Department cannot conclude the proper tax treatment for the above
services, I request that the Department contact me to determine what additional
information is required. Feel free to call me with any additional questions.

DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.
Code 1200.110(a)(4). Further, the Department’s regulations regarding Private Letter Rulings provide
that “[i]f there is case law or there are regulations dispositive of the subject to the request, the
Department will decline to issue a letter ruling on the subject." 86 Ill. Adm. Code 1200.110(a)(3)(D).
The Department declines to issue a Private Letter Ruling since its regulations are dispositive of the
subject of your request. Although we are not providing you with a Private Letter Ruling, it appears
that your analysis of Illinois sales tax laws regarding Service Occupation Tax and Retailers’
Occupation Tax transactions does conform with the procedures set forth below.
Please see 86 Ill. Adm. Code 130.2000, which is the regulation for "Persons Engaged in the
Printing, Graphic Arts or Related Occupations, and Their Suppliers." As a general rule, when products
are items of general utility and serve substantially the same function as stock or standard items, the
products will be subject to the Retailers’ Occupation Tax when sold. Items which serve substantially
the same function are those which, when produced on special order, could be sold as produced to
someone other than the original purchaser at substantially the same price. Items that would not be
considered stock or standard items and would not be sold to someone other than the purchaser for
substantially the same price would not be subject to the Retailers’ Occupation Tax when sold, but
would generally be subject to Service Occupation Tax liability or Use Tax liability as described below.
Illinois Retailers' Occupation and Use Taxes do not apply to sales of service that do not involve
the transfer of tangible personal property to customers. However, if tangible personal property is
transferred incident to sales of service, this will result in either Service Occupation Tax liability or Use
Tax liability for the servicemen depending upon his activities. For your general information see of 86
Ill. Adm. Code 140.101 through 140.109 regarding sales of service and Service Occupation Tax.
Under the Service Occupation Tax Act, businesses providing services (i.e. servicemen) are
taxed on tangible personal property transferred as an incident to sales of service. See 86 Ill. Adm.
Code 140.101. The purchase of tangible personal property that is transferred to the service customer
may result in either Service Occupation Tax liability or Use Tax liability for the servicemen depending
upon his activities. The serviceman’s liability may be calculated in one of four ways: (1) separately
stated selling price of tangible personal property transferred incident to service; (2) 50% of the
servicemen's entire bill; (3) Service Occupation Tax on the servicemen's cost price if the servicemen
are registered de minimis servicemen; or (4) Use Tax on the servicemen's cost price if the
servicemen are de minimis and are not otherwise required to be registered under Section 2a of the
Retailers' Occupation Tax Act. Normally, most printers handle their liabilities under one of the de
minimis methods.
Using the first method, servicemen may separately state the selling price of each item
transferred as a result of the sale of service. The tax is then calculated on the separately stated
selling price of the tangible personal property transferred. If the servicemen do not separately state
the selling price of the tangible personal property transferred, they must use 50% of the entire bill to

the service customer as the tax base. Both of the above methods provide that in no event may the tax
base be less than the servicemen's cost price of the tangible personal property transferred. See 86 Ill.
Adm. Code 140.106.
The third way servicemen may account for their tax liability only applies to de minimis
servicemen who have either chosen to be registered or are required to be registered because they
incur Retailers' Occupation Tax liability with respect to a portion of their business. See 86 Ill. Adm.
Code 140.109. Servicemen may qualify as de minimis if they determine that the annual aggregate
cost price of tangible personal property transferred as an incident of the sale of service is less than
35% of the total annual gross receipts from service transactions (75% in the case of pharmacists and
persons engaged in graphics arts production). Servicemen no longer have the option of determining
whether they are de minimis using a transaction by transaction basis. Registered de minimis
servicemen are authorized to pay Service Occupation Tax (which includes local taxes) based upon
their cost price of tangible personal property transferred incident to the sale of service. Such
servicemen should give suppliers resale certificates and remit Service Occupation Tax using the
Service Occupation Tax rates for their locations. Such servicemen also collect a corresponding
amount of Service Use Tax from their customers, absent an exemption.
The final method of determining tax liability may be used by de minimis servicemen that are
not otherwise required to be registered under Section 2a of the Retailers' Occupation Tax Act. Such
de minimis servicemen handle their tax liability by paying Use Tax to their suppliers. If their suppliers
are not registered to collect and remit tax, the servicemen must register, self-assess and remit Use
Tax to the Department. The servicemen are considered to be the end-users of the tangible personal
property transferred incident to service. Consequently, they are not authorized to collect a "tax" from
the service customers. See 86 Ill. Adm. Code 140.108.
I hope this information is helpful. However, 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