Did an Illinois contest winner owe Use Tax on noncash prizes such as outdoor furniture and lighting?

Plain-English summary

The contest winner did not owe Illinois Use Tax merely because the winner received noncash prizes. The requester had won items such as outdoor furniture and lighting and asked whether Use Tax applied even though no purchase was made.

The Department placed the Use Tax on the donor or contest sponsor. A person that purchases tangible personal property to give it away makes a taxable use of the property and incurs Use Tax on that purchase. The recipient incurs no Use Tax liability from the gift.

The same rule applied to a lawful raffle: the raffle provider incurred Use Tax on the prize's purchase price unless otherwise exempt, while the raffle winner incurred no Use Tax from winning the property.

What this means for you

A business running a contest or lawful raffle should account for Use Tax when it purchases property that will be awarded. The recipient generally does not self-assess Illinois Use Tax on the prize under the rule described here. This GIL did not address any separate federal or state income-tax consequences for the winner.

Common questions

Q: Who owed Use Tax on a purchased contest prize?
A: The donor or contest sponsor that bought the property for the purpose of giving it away.

Q: Did the winner owe Use Tax on receiving the prize?
A: No. The letter says the contest winner incurred no Use Tax liability as a result of winning.

Q: Was a lawful raffle treated differently?
A: No. The raffle provider generally owed Use Tax on the prize purchase, and the raffle winner owed none from winning it.

Subject

Use 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-11-0032.pdf

Original ruling text

ST 11-0032-GIL 05/10/2011 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. (This is a GIL.)

May 10, 2011

Dear Xxxxx:
This letter is in response to your letter dated January 27, 2011, in which you request a Private
Letter Ruling. 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 writing to get the answer to a specific question about Use Tax. I tried calling the
toll-free telephone number for tax assistance at the Illinois Department of Revenue in
Springfield. However, the agent was not confident that he could give me the correct
answer, and neither he nor I could seem to find any information on the tax.illinois.gov
website that specifically addressed my situation. He recommended that I ask the Legal
Services Department for a Private Letter Ruling on the issue.
I was notified that I was the winner of a contest by MAGAZINE, which is part of
CORPORATION in CITY/STATE. The prizes, which are to be awarded this year, 2011,
will include items such as outdoor furniture and lighting, rather than any cash award. I
know that I will be issued a 1099-misc, and I will need to pay both Federal and State
Income Tax on the value of any prizes I accept. My question is, am I also subject to
Illinois Use Tax on the prizes? I did not purchase anything. I don’t even subscribe to
the magazine. I entered the contest online at their website. I would greatly appreciate
your assistance with this question as soon as possible, since I need the information to
help me determine how much of the prize package I can afford to accept.
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). The Department declines to issue a Private Letter Ruling and has decided to
respond with a General Information Letter.
In a gift situation the donor who purchases the tangible personal property and gives it away
makes a taxable use of the property when making the gift. See subsection (c) of the Department’s
regulation at 86 Ill. Adm. Code 150.305, which can be found on the Department’s website. When
such a gift is made, the donee incurs no Use Tax liability as a result of the gift.
In a lawful raffle, the donor of the tangible personal property (raffle provider) incurs Use Tax
liability on the purchase price of the tangible personal property that is won in a raffle. The donee
(raffle winner) incurs no Use Tax liability as a result of winning the raffle.
In a situation involving a lawful raffle occurring in this State, the raffle provider incurs Use Tax
liability on the purchase price of the tangible personal property that is provided as a prize in a raffle,
unless the raffle provider is otherwise exempt from Illinois Use Tax liability. The raffle winner incurs
no Use Tax liability as a result of winning the raffle. Similarly, donors of tangible personal property
(prizes) pursuant to a contest incur Use Tax liability on the purchase price of the tangible personal
property that is won in a contest, and the donee (contest winner) incurs no Use Tax liability as a result
of winning the contest.
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