Did Illinois classify a trade-show company's service, lease, telecom, and catering revenue items as taxable or nontaxable?

Plain-English summary

The Department did not classify the trade-show company's long list of charges as taxable or nontaxable. It said it could not respond in that format and instead explained several general tax regimes.

For services, the letter says a service with no transfer of tangible personal property was outside Illinois Service Occupation and Use Tax. When property such as reports, media, or manuals was transferred with a service, the provider could owe Service Occupation Tax or Use Tax depending on its activities and chosen tax base. The GIL described four historical calculation methods and special treatment for de minimis servicemen.

The letter also distinguished conditional sales from true leases. Receipts under a conditional sale were subject to Retailers' Occupation Tax; under a true lease, the lessor generally owed Use Tax on its cost and Illinois did not tax the rental receipts.

For telecommunications, the GIL discussed tax on Illinois-originating or Illinois-received telecommunications, resale-number requirements, Internet-access treatment under the then-current federal moratorium, and separate treatment for disaggregated content charges. For catering, the entire charge associated with selling food—including labor, set-up, delivery, and related items—was included in taxable gross receipts. A separately invoiced and customer-initialed charge unrelated to the food sale, such as entertainment, was described as nontaxable.

What this means for you

Classify each revenue stream by what is actually provided, whether property changes hands, who owns leased property, and how charges are documented. This 2011 GIL is a framework, not an item-by-item determination, and its historical rates and federal Internet-access discussion need current-law review.

Common questions

Q: Are all service charges nontaxable?
A: No. The letter says transferred tangible property can create Service Occupation Tax or Use Tax liability.

Q: Did Illinois tax receipts from a true lease under the rules described?
A: No. The GIL says the lessor generally owed Use Tax on cost, while rental receipts were not taxed.

Q: Could a caterer remove labor, delivery, or set-up by stating them separately?
A: No. The letter treats those food-sale costs as part of taxable gross receipts even when separately billed.

Subject

Service Occupation Tax

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0014.pdf

Original ruling text

ST 11-0014-GIL 03/29/2011 SERVICE OCCUPATION TAX
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 serviceman depending upon his or
her activities. See 86 Ill. Adm. Code 140.101. (This is a GIL.)See 86 Ill. Adm. Code . (This is a
GIL.)

March 29, 2011

Dear Xxxxx:
This letter is in response to your letter dated January 20, 2011, 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:
In an effort to update and confirm the accuracy of our sales tax records, we are
contacting you to obtain clarification/verification on the taxability of our revenue items.
COMPANY is a tradeshow exhibit management company. We manage our clients’
properties (i.e., their tradeshow exhibit) to and from shows, and the related services.
Enclosed please find the listing and description of our revenue items. Please provide
the correct classification of each item as ‘taxable’ or ‘non-taxable’. An electronic version
of this is also available.
Please do not hesitate to contact me with any questions.
Thank you for your assistance in this matter.
Your enclosure reads as follows:
Illinois – Classification of BSE Revenue Items as Taxable or Nontaxable

Type

Service
Service
Service

Service
Service

Service
Service

Service
Service

Service

Service
Service

Service

Service

Item

Description

Taxable Account
(T)
or
Nontaxable (N)
in IL
Access
Provide access storage
4060
–
Show
Storage
during show hours.
Services Revenue
Audio/Video
4060
–
Show
Services Revenue
Carpet
& Provide high quality carpet
4005 – Construction
Padding
and ½” padding for
Revenue
complete exhibit floor
space.
Catering
4060
–
Show
Services Revenue
Cleaning
Provide daily cleaning
4060
–
Show
service including vacuumServices Revenue
ing and emptying of waste
bins for the duration of the
show. The first vacuuming
will be the night before the
show opens.
ConstrucConstruct
4005 – Construction
tion
Revenue
Courier
/
4020
–
Freight
TransportaRevenue
tion
Crating
Produce the following
4005
Construction
class A crate.
Revenue
Design
Creative
design
and
4010
–
Design
development of exhibit
Revenue
marketing
environment.
Including
consultation,
preliminary development
and final presentation
drawings.
Dismantle
Provide dismantle labor
4060
–
Show
Labor
according to the following
Services Revenue
schedule:..
Disposal
4005 – Construction
Revenue
Drayage
Coordinate
drayage
4060
–
Show
Services
services for all exhibit
Services Revenue
properties. This includes
final weight audit, and bill
of lading completion.
Electrical
Provide
the
following
4060
–
Show
Services
electrical
power
and
Services Revenue
services including labor
and materials:..
Engineering Produce one (1) complete
5005 – Construction

set of engineering drawings used for construction
and installation on-site.
Service

Expenses

Service

Floral

Service

Freight

Service

Freight
From Show

Service

Freight
Show
Furniture

Service
Service

Provide the following floral
to be rented for the
duration of the show. This
includes delivery and pickup.
Shipping
Properties will ship from
the show via Van Lines
Carrier.
To Properties will ship to
show via Van Line carrier.

Service

Graphic
Design
Graphics

Service

Handling

Service

Handling In

Service

Service

Service

Provide
the
following
graphic elements, produced from client-supplied
production-ready artwork.

Receive all exhibit properties into warehouse,
inspect exterior for visual
damage and place into
storage.
Handling In Receive in all exhibit

• Full
  properties, inspect exterior
  of all crates, open each
  crate and check contents
  for damages and completeness, re-pack crates
  and move to storage in
  warehouse.
  Produce a
  damage report if needed
  for customer review.
  Handling
  Pull the following exhibit
  Out
  properties from storage
  and load out.
  Prepare
  shipping
  documents
  including shipping and
  packaging lists.
  Handling
  Pull all exhibit properties
  Out - Full
  from
  storage,
  inspect
  exterior of all crates, open

Cost of Goods Sold:
5008
–Project
Management
4060- Show Services
Revenue
4060
–
Show
Services Revenue

4020
–
Revenue
4020
–
Revenue

Freight
Freight

4020
–
Freight
Revenue
4060- Show Services
Revenue
4010
–
Design
Revenue
4030
–
Graphic
Revenue

4050 – Warehouse
Revenue
4050 – Warehouse
Revenue

4050 – Warehouse
Revenue

4050 – Warehouse
Revenue

4050 – Warehouse
Revenue

Service

Installation
Labor

Service

Internet
Access
Labor

Service
Service

Lead
Processing

Service

Lighting

Service

Materials

Service

Photograph
y
Plumbing

Service
Service

Service

PM – Warehousing
Portable
Booth
Portables

Service

Preview

Service

Project
Management

Service

Refurbish

Service

Rental

Service

Rigging

Service

each crate and check
contents for damages and
completeness,
re-pack
crates and move to dock
for shipping. Produce a
damage report if needed
for customer review.
Provide installation labor
according to the following
schedule:
Provide

Provide Lead Machines
with disk option and paper
roll.

Provide
materials

show-site

Provide a partial setup in
our shop for pre-show
viewing.
Coordinate and implement
the
related
project
purchases, services, and
fabrication for this job.
Maintain project timeline.
Communicate
to
the
project team members the
project status and details.
Maintain project quality
control.
Repair the following:

Provide rigging crew with
operator
assistant
according to the following

4060
–
Show
Services Revenue
4060
–
Show
Services Revenue
4060
–
Show
Services Revenue
4060
–
Show
Services Revenue
4060
–
Show
Services Revenue
4060
–
Show
Services Revenue
4060
–
Show
Services Revenue
4060
–
Show
Services Revenue
4050 – Warehouse
Revenue
4005 – Construction
Revenue
4005 – Construction
Revenue
4005 – Construction
Revenue
4005 – Construction
Revenue

4005 – Construction
Revenue
4035
–
Rental
Revenue
4060
–
Show
Services Revenue

schedule to assist with
overhead assemblies:
Service

Security

Service

Service
Coordinatio
n

Service

Service
Service
Service

Coordinate
all
show
service
orders,
-prepayments, order forms,
and post show audits.
Show Main- Provide
show
maintenance
tenance labor according to
the following schedule:..
Storage

Supervision
Labor
Telephone
Service

Supervision of installation
and dismantle labor.
Provide telephone lines as
outlined below.
Long
distance and 800 calls will
incur additional charges.

4060
–
Show
Services Revenue
4060
–
Show
Services Revenue

4060
–
Show
Services Revenue
4040
–
Storage
Revenue
4060
–
Show
Services Revenue
4060
–
Show
Services Revenue

DEPARTMENT’S RESPONSE:
We are unable to respond in the format you requested. We hope the following information is
helpful.
Retailers’ Occupation Tax Act
The Illinois Retailers’ Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property to purchasers for use or consumption. See 86 Ill.
Adm. Code 130.101. The tax is measured by the seller's gross receipts from retail sales made in the
course of such business. "Gross receipts" means the total selling price or the amount of such sales.
The retailer must pay Retailers' Occupation Tax to the Department based upon its gross receipts, or
actual amount received, from the sale of the tangible personal property.
In Illinois, Use Tax is imposed on the privilege of using, in this State, any kind of tangible
personal property that is purchased anywhere at retail from a retailer. See 35 ILCS 105/3; 86 Ill.
Adm. Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois. If the
purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of
purchase. The retailers are then allowed to retain the amount of Use Tax paid to reimburse
themselves for their Retailers' Occupation Tax liability incurred on those sales. If the retailer does not
collect the Use Tax from the purchaser for remittance to the Department, the purchaser is responsible
for remitting the Use Tax directly to the Department. See 86 Ill. Adm. Code 150.130
Service Occupation Tax Act
Illinois Service 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 86 Ill.

Adm. Code 140.101 through 140.109 regarding sales of service and Service Occupation Tax.
Services that involve the transfer of tangible personal property (such as, for example, written reports,
other tangible media and training manuals) incident to a sale of service may be subject to either
Service Occupation Tax liability or Use Tax liability.
Generally, under the Service Occupation Tax Act, servicemen are taxed on tangible personal
property transferred as an incident to sales of service. The liability of servicemen in these
transactions may result in either Service Occupation Tax liability or Use Tax liability for servicemen
depending upon which tax base the servicemen choose to calculate their tax liability. Servicemen
may calculate their tax base 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 the Retailers' Occupation Tax Act.
Using the first method, servicemen may separately state the selling price of each item
transferred as a result of sales of service. The tax is based on the separately stated selling price of
the tangible personal property transferred. Under a second method, if servicemen do not wish to
separately state the selling price of the tangible personal property transferred, the servicemen must
use 50% of the entire bill to service customers as the tax base. Both of the above stated methods
provide that in no event may the tax base be less than the servicemen's cost price of the tangible
personal property transferred.
The third way servicemen may account for 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. Servicemen may qualify as de
minimis if they determine that the annual aggregate cost price of tangible personal property
transferred as an incident of sales of service is less than 35% of the servicemen's annual gross
receipts from service transactions (75% in the case of pharmacists and persons engaged in graphic
arts production). This class of registered de minimis servicemen is authorized to pay Service
Occupation Tax (which includes local taxes) based upon the cost price of tangible personal property
transferred incident to sales of service. They remit the tax to the Department by filing returns and do
not pay tax to suppliers. They provide suppliers with Certificates of Resale for the property
transferred to service customers.
De minimis servicemen that are not otherwise required to be registered under the Retailers
Occupation Tax Act may use the final method of determining tax liability. Servicemen may qualify as
de minimis if they determine that the annual aggregate cost price of tangible personal property
transferred as an incident of sales of service is less than 35% of the servicemen's annual gross
receipts from service transactions (75% in the case of pharmacists and persons engaged in graphic
arts production). Such de minimis servicemen may pay Use Tax to their suppliers or may self assess
and remit Use Tax to the Department when making purchases from unregistered out-of-State
suppliers. The servicemen are not authorized to collect "tax" from their service customers nor are the
servicemen liable for Service Occupation Tax. It should be noted that servicemen no longer have the
option of determining whether they are de minimis using a transaction-by-transaction basis.
When a serviceman contracts out all or a portion of the service that he will provide, he is acting
as a primary serviceman in a multi-service situation. As a primary serviceman, he engages the
services of a secondary serviceman in order to obtain all or part of the product and services desired
by the service customer. See 86 Ill. Adm. Code 140.145 to determine the tax incurred in these
situations.

Leases
The State of Illinois taxes leases differently for Retailers’ Occupation Tax and Use Tax
purposes than the majority of other states. For Illinois sales tax purposes, there are two types of
leasing situations: conditional sales and true leases.
A conditional sale is usually characterized by a nominal or one dollar purchase option at the
close of the lease term. Stated otherwise, if a lessor is guaranteed at the time of the lease that the
leased property will be sold, this transaction is considered to be a conditional sale at the outset of the
transaction. Persons who purchase items for resale under conditional sales contracts can avoid
paying tax to suppliers by providing certificates of resale that contain all the information set forth in 86
Ill. Adm. Code 130.1405. All receipts received by a lessor/retailer under a conditional sales contract
are subject to Retailers’ Occupation Tax. See 86 Ill. Adm. Code 130.2010.
A true lease generally has no buy out provision at the close of the lease. If a buy-out provision
does exist, it must be a fair market value buy-out option in order to maintain the character of the true
lease. Lessors of tangible personal property under true leases in Illinois are deemed end users of the
property to be leased. See 86 Ill. Adm. Code 130.220. As end users of tangible personal property
located in Illinois, lessors owe Use Tax on their cost price of such property.
The State of Illinois imposes no tax on rental receipts. Consequently, lessees incur no tax
liability. As stated above, in the case of a true lease, the lessors of the property being used in Illinois
would be the parties with Use Tax obligations. The lessors would either pay their suppliers, if their
suppliers were registered to collect Use Tax, or would self-assess and remit the tax to the
Department. If the lessors already paid taxes in another state with respect to the acquisition of the
tangible personal property, they would be exempt from Use Tax to the extent of the amount of such
tax properly due and paid in such other state. See subsection (a)(3) of 86 Ill. Adm. Code 150.310.
Under Illinois law, lessors may not “pass through” their tax obligation to the lessees as taxes.
However, lessors and lessees may make private contractual arrangements for a reimbursement of
the tax to be paid by the lessees. If lessors and lessees have made private agreements where the
lessees agree to reimburse the lessors for the amount of the tax paid, then the lessees are obligated
to fulfill the terms of the private contractual agreements.
Telecommunications Excise Tax Act
The Telecommunications Excise Tax is imposed upon the act or privilege of originating or
receiving intrastate or interstate telecommunications in Illinois at the rate of 7% of the gross charges
for such telecommunications purchased at retail from retailers. See 35 ILCS Sections 630/3 and
630/4. Telecommunications retailers collect tax from end users and remit it to the Department. See
86 Ill. Adm. Code 495.140. "Telecommunications", in addition to the meaning ordinarily and popularly
ascribed to it, includes, without limitation, messages or information transmitted through use of local,
toll and wide area telephone service; private line services; channel services; telegraph services;
teletypewriter; computer exchange services; cellular mobile telecommunications service; specialized
mobile radio; stationary two way radio; paging service; or any other form of mobile and portable oneway or two-way communications; or any other transmission of messages or information by electronic
or similar means, between or among points by wire, cable, fiber-optics, laser, microwave, radio,
satellite or similar facilities. See 35 ILCS 630/2(c).
Interstate and intrastate telecommunications that originate or are received in this State are
subject to Telecommunications Excise Tax.
Interstate telecommunications means all
telecommunications that either originate or terminate outside the State. This includes

telecommunications that originate or terminate outside of the United States. Consumers paying
foreign taxes on telecommunications may take credit for such taxes in the same manner as taxes
paid to other states. See 86 Ill. Adm. Code 495.115 and 495.130.
Retailers of telecommunications are persons who engage in the business of making sales of
telecommunications at retail. 86 Ill. Adm. Code 495.110. "Sale at retail" means the transmitting,
supplying or furnishing of telecommunications and all services and equipment provided in connection
therewith for a consideration. The Telecommunications Excise Tax must be collected from a
taxpayer by a "retailer maintaining a place of business in this State." The Department may, in its
discretion, upon application, authorize the collection of the tax by any retailer not maintaining a place
of business within this State, who, to the satisfaction of the Department, furnishes adequate security
to insure collection and payment of the tax. Such retailer shall be issued, without charge, a permit to
collect such tax. When so authorized, it shall be the duty of such retailer to collect the tax upon all of
the gross charges for telecommunications in this State in the same manner and subject to the same
requirements as a retailer maintaining a place of business within this State. The permit may be
revoked by the Department at its discretion. 35 ILCS 630/2(l).
The Internet Tax Freedom Act imposes a federal moratorium on state or municipal taxes on
Internet access until November 1, 2014. 47 USCA § 151 note; § 1101. “Internet access”:
(A) means a service that enables users to connect to the Internet to access content,
information, or other services offered over the Internet;
(B) includes the purchase, use or sale of telecommunications by a provider of a service
described in subparagraph (A) to the extent such telecommunications are purchased,
used or sold(i) to provide such service; or
(ii) to otherwise enable users to access content, information or other services offered
over the Internet;
(C) includes services that are incidental to the provision of the service described in
subparagraph (A) when furnished to users as part of such service, such as a home
page, electronic mail and instant messaging (including voice and video-capable
electronic mail and instant messaging), video clips, and personal electronic storage
capacity;
(D) does not include voice, audio or video programming, or other products and services
(except services described in subparagraph (A), (B), (C), or (E)) that utilize Internet
protocol or any successor protocol and for which there is a charge, regardless of
whether such charge is separately stated or aggregated with the charge for services
described in subparagraph (A), (B), (C), or (E); and
(E) includes a homepage, electronic mail and instant messaging (including voice and
video-capable electronic mail and instant messaging), video clips, and personal
electronic storage capacity, that are provided independently or not packaged with
Internet access.
Telecommunications that are purchased, used or sold by a provider to enable users to connect
to the Internet or to otherwise enable users to access content, information or other services offered
over the Internet are subject to the federal moratorium. Thus, not all telecommunications are subject
to the moratorium. In addition, paragraph D of the definition of “Internet access” excludes “voice,
audio or video programming, or other products and services (except services described in
subparagraph (A), (B), (C), or (E)) that utilize Internet protocol or any successor protocol and for
which there is a charge, regardless of whether such charge is separately stated or aggregated with
the charge for services described in subparagraph (A), (B), (C), or (E).”
Therefore,
telecommunications, including for example Voice over Internet Protocol (VoIP), that are not

purchased, used or sold to a provider to enable users to connect to the Internet or to otherwise
enable users to access content, information or other services offered over the Internet, are not
subject to the federal moratorium and are subject to the Telecommunications Excise Tax.
Generally, charges for chat line services, other than the charges for transmission, are not
subject to Telecommunications Excise Tax. See 86 Ill. Adm. Code 495.100(i). Section 495.100(i)
states that, "[g]ross charges shall include the transmission charges for premium services.
Time/weather, gab line/party line and other public announcement services of information and
entertainment, and charges for the message content or information of such services, are not included
in gross charges." Please note that charges for such services are not subject to Telecommunications
Excise Tax provided that the charges for such services are disaggregated and separately identified
from other charges in the books and records of the telecommunications retailer. See 86 Ill. Adm.
Code 495.100.
A retailer maintaining a place of business in this State must collect and remit to the
Department the tax imposed by the Act. The retailer shall be liable for the tax whether or not the tax
has been collected by the retailer. 35 ILCS 630/5.
If a person who originates or receives telecommunications in this State claims to be a reseller
of such telecommunications, the person is required to apply to the Department for a resale number.
The applicant must state facts which show the Department why the applicant is not liable for tax on
his purchases. The act or privilege of originating or receiving telecommunications in this State cannot
be made tax free on the ground of being a sale for resale unless the person has an active resale
number from the Department and furnishes that number to the retailer in connection with a sale to
such person. 35 ILCS 630/8.
If a person originating or receiving telecommunications in this State elects not to apply for a
resale number, the act or privilege of originating or receiving telecommunications in this State by such
person cannot be made tax free. If a reseller is purchasing telecommunications services from a
retailer and has not provided the retailer with an active resale number, the retailer is responsible for
collecting the tax from the reseller for calls originating or terminating in this State.
Catering
As noted above, the Retailers' Occupation Tax is imposed upon persons engaged in this State
in the business of selling tangible personal property for use or consumption. Persons that are
engaged in the business of selling meals to purchasers for use or consumption incur Retailers'
Occupation Tax liability on their gross receipts from such sales. See 86 Ill. Adm. Code 130.2145.
Retailers' Occupation Tax is based upon the "selling price" of the tangible personal property
sold. Section 1 of the Retailers' Occupation Tax Act defines the term, "selling price," as the
"consideration for a sale valued in money … without any deduction on account of the cost of the
property sold, the cost of materials used, labor or service cost or any other expense whatsoever…."
See, 35 ILCS 120/1. See also 86 Ill. Adm. Code 130.410.
As a result, tax is imposed upon a caterer's entire gross receipts from sale, without any
deduction on account of service costs or other overhead costs. A caterer's gross receipts would
include all receipts associated with his sale of food. Such costs would include charges for linens,
tables, chairs, dishes, glasses, flowers, labor, set-up, and delivery. Each of these items is a part of
the cost of doing business as a caterer. It is immaterial that the customer is separately billed for the
price of these items. These costs are costs of doing business as a caterer, just as they would be part
of the overhead expenses incurred by a restaurant owner.

When a caterer makes separate charges to customers for items which are not associated with
the sale of food, such items are not taxable, provided that they are separately listed on the invoice to
the customer and are initialed by the customer. This would be the case, for instance, with charges for
entertainment (singers, bands, and the like).
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,

Richard S. Wolters
Associate Counsel
RSW:msk