When a restaurant gave customers complimentary meals and drinks, was Illinois Use Tax based on menu price or the restaurant's cost?

Plain-English summary

A restaurant that removed food or drinks from inventory and gave them to customers owed Use Tax on its cost, not the normal selling price. The restaurant became the end user of the property in the gift transaction.

The restaurant could satisfy the obligation by paying tax to its supplier or by self-assessing and remitting Use Tax directly to the Department. The customer receiving the complimentary meal or drink had no Use Tax liability.

What this means for you

Track complimentary items separately from discounted or bundled sales, and retain cost records for self-assessment.

Common questions

Q: Was tax based on the menu price?
A: No. It was based on the restaurant's cost price under the rule described.

Q: Did the customer owe Use Tax?
A: No.

Subject

Use 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-10-0093.pdf

Original ruling text

ST 10-0093-GIL 10/11/2010 USE TAX
A person who purchases tangible personal property for the purpose of giving it away makes a
taxable use of the property and incurs Use Tax upon such purchase. See 86 Ill. Adm. Code
150.305(c). (This is a GIL.)

October 11, 2010

Dear Xxxxx:
This letter is in response to your letter dated September 28, 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:
My client is a restaurant that from time to time compliments meals and drinks to it’s [sic]
customers. We are asking for a letter ruling as to do we pay use tax on the full amount
of the price of the meal or on the cost of the meal.

DEPARTMENT’S RESPONSE:
When retailers take an item from inventory and "use" the item, a Use Tax liability is incurred.
This would be the case, for example, where a retailer takes an item from inventory and makes a gift
of it to someone. In that instance, the retailer (donor of the gift) is deemed the end user of the
property and is subject to the Use Tax on his cost price of the item, rather than the normal selling
price of the item. The donee in a gift situation incurs no Use Tax liability. See 86 Ill. Adm. Code
150.305(c); see also 86 Ill. Adm. Code 130.2125(c) concerning “Gift Situations.” The donor may
satisfy this Use Tax obligation either by paying tax to his supplier or by self-assessing Use Tax and
paying directly to the Department.
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.

Jerome I. Wright & Associates, Inc.
Page 2
October 11, 2010

Very truly yours,

Richard S. Wolters
Associate Counsel
RSW:msk