Did Illinois tax an automotive core charge, and what happened to the tax when the core or the purchased part was later returned?

Plain-English summary

An automotive core charge was taxable as part of the full retail selling price. Labeling part of the price a core charge did not change the tax result, and the rule applied to all tangible-property sales involving cores.

The GIL used an alternator priced at $50 plus a $15 core charge. Without a core supplied at purchase, taxable gross receipts were $65. If the customer later returned the core, the retailer should refund the $15 core charge and the tax paid on that amount.

If the customer supplied the like-kind core at the time of purchase, no core charge was made. The $15 trade-in value reduced the $65 gross receipts, leaving $50 taxable. A full merchandise refund required a refund of all related sales tax; a partial refund required the tax attributable to the refunded amount.

What this means for you

Track whether the core arrived with the original purchase or later. The first is treated as a like-kind trade-in reducing the initial tax base; the second starts with a taxable core charge followed by a refund of that charge and its tax when the core is returned.

Common questions

Q: Were only battery core charges taxable?
A: No. The GIL said Section 130.425(i) applied to all tangible-property sales involving cores.

Q: Was tax refunded when only the core was returned later?
A: Yes. The full core charge and the tax paid on it should be refunded.

Citations and references

• 86 Ill. Adm. Code 130.425(i)
• 86 Ill. Adm. Code 130.401 and 130.401(b)
• 2 Ill. Adm. Code 1200.110 and 1200.120

Subject

Gross Receipts

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-10-0038.pdf

Original ruling text

ST 10-0038-GIL 04/28/2010 GROSS RECEIPTS
When an item of tangible personal property is sold at retail and includes a core charge, the full
retail selling price of the item, including the core charge, is subject to Retailers' Occupation Tax
liability. See 86 Ill. Adm. Code 130.425. (This is a GIL.)

April 28, 2010

Dear Xxxxx:
This letter is in response to your letter dated April 6, 2010, 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:
The purpose of this letter is to request a ruling from the Illinois Dept of Revenue
concerning the taxability of core charges. As a large retailer of automotive parts and
accessories, it is imperative that we clarify the sales tax implications concerning retail
sales, refunds and exchanges of core charges. Attached is a list of products that have
core charges associated with them. In researching this issue, we have discovered that
the laws vary state by state. Our questions are as follows:
1.

Are core charges subject to sales tax? If so, does this apply to all cores or are
some exempt? For example, in some states we have found that only battery
cores are taxable while all others are exempt.

The following questions apply only if cores are taxable:
2.

In the event of a full refund of a part and its related core charge (i.e., and [sic]
undamaged return), is the sales tax refunded on the core charge?

3.

In the event of a partial refund of a part (i.e., a prorated battery or damaged
return) and its related core charge, is the sales tax refunded on the core charge?

4.

In the event of a core charge refund only, is the sales tax refunded? For
example, if a customer neglects to bring a core in when purchasing a part but
brings it in at a later date and is then refunded for his core, is the sales tax
refunded?

5.

In the event of a core exchange, is sales tax refunded on the returned core? For
example, if a customer purchases an alternator for $50 plus $15 core charge and
returns a core and receives a $15 credit, is the taxable amount $65 (i.e., $50+15)
or $50 (i.e., $50+15-$15).

It would be most beneficial to COMPANY if you would respond in writing on these sales
tax issues regarding core charges as it is our intent to comply fully with the law while
providing excellent customer service. Please include a copy of the law or regulation #
associated with your response.
Your prompt attention to this matter is appreciated.

DEPARTMENT’S RESPONSE:
In Illinois, the gross receipts received from a retail sale are subject to Retailers' Occupation
Tax. Gross receipts are defined as all the consideration actually received by the seller, except tradedin tangible personal property personal property. See 86 Ill. Adm. Code 130.401 and 130.425.
When an item of tangible personal property is sold at retail and includes a core fee, the full
retail selling price of the item, including the core fee, is subject to Retailers' Occupation Tax liability.
The fact that part of the gross receipts from the sale of an item of tangible personal property is
labeled a "core charge" does not change the taxable nature of the transaction. A core charge is
merely considered part of the charge for the sale of the new part and is always taxable. For example,
if the retailer charged a customer $50 plus a $15 core charge for an alternator, the gross receipts
from the sale of that alternator would be $65. See 86 Ill. Adm. Code 130.425(i). The application of
Section 130.425(i) applies to all sales of tangible personal property when cores are involved. If a
core is returned by a purchaser at a later date for a refund of the core charge, the entire amount of
the core charge should be refunded along with any tax paid by the purchaser. See 86 Ill. Adm. Code
130.425(i).
If the item is returned for a refund and the entire selling price is returned to the customer,
including the core charge, the retailer should refund all of the sales tax to the customer. See 86 Ill.
Adm. Code 130.401(b). If a partial refund is provided (such as for a prorated battery or damaged
return) the amount of tax relating to the partial refund amount should be refunded to the purchaser.
Please note that the tax consequences are different if the customer provided the “core” to the
retailer at the time of purchase. In that situation, the core would be considered to be a like kind
trade–in and no core charge would be made. Using the same example, the $65 in gross receipts
from the sale of the alternator would be reduced by $15 (the value of like kind trade-in) and the
taxable amount would only be $50.
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,

Terry D. Charlton
Senior Counsel, Sales & Excise Taxes
TDC:msk