Are aircraft repair and maintenance services or the parts transferred with them exempt from Illinois tax?

Plain-English summary

Illinois did not determine whether the FAA repair station's work qualified for exemption. The request did not identify the exact service or maintenance being performed or the aircraft parts involved.

Labor-only service

Illinois Retailers' Occupation and Use Taxes did not apply to a service that transferred no tangible personal property to the customer.

Repairs involving parts or materials

When repair or maintenance included a transfer of tangible personal property, the transaction generally produced Service Occupation Tax or Use Tax liability unless an exemption applied.

The GIL described four possible methods for a serviceman's liability: the separately stated selling price of transferred property; 50% of the whole bill; Service Occupation Tax on cost for a registered de minimis serviceman; or Use Tax on cost for an unregistered de minimis serviceman not otherwise required to register. The applicable method depended on the serviceman's activities and registration status.

Aircraft exemption was narrowly conditioned

The exemption quoted in the GIL covered qualifying materials, parts, equipment, components, furnishings, and consumable supplies incorporated into or upon an aircraft during specified modification, refurbishment, completion, replacement, repair, or maintenance work.

It applied only to an organization that held an FAA Air Agency Certificate, was authorized to operate an approved repair station, had a Class IV Rating, and operated under Part 145.

The exemption excluded property used on aircraft engines or power plants, whether installed or uninstalled. It also excluded aircraft operated by a commercial air carrier providing scheduled passenger service under Part 121 or Part 129.

What this means for you

Aircraft repair stations

FAA repair-station status alone did not establish the tax result. Identify the precise work, the property transferred, where it is incorporated, the aircraft use, and whether an engine or power plant is involved.

Customers buying labor-only work

Pure service without a property transfer was outside the sales and use taxes discussed. Any parts or supplies transferred can change the analysis.

Common questions

Q: Did Illinois approve the requester's exemption?
A: No. The Department said the necessary service and aircraft-part facts were missing.

Q: Were engine parts included in the quoted aircraft exemption?
A: No. Materials and supplies used on aircraft engines or power plants were excluded.

Q: Did the exemption cover scheduled passenger aircraft?
A: No for aircraft operated under Part 121 or Part 129 as described in the statute.

Citations and references

• 35 ILCS 120/2 and 35 ILCS 105/3 — Retailers' Occupation Tax and Use Tax.
• 86 Ill. Adm. Code 140.101, 140.106, 140.108, 140.109, and 140.140(l) — taxation methods for property transferred incident to service.
• 35 ILCS 120/2-5(40) — aircraft repair-property exemption and its organizational, engine, and scheduled-service limitations.

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-11-0075.pdf

Original ruling text

ST 11-0075-GIL 09/15/2011 SALE OF SERVICE
Where a business provides repair services that are accompanied with the transfer of tangible
personal property, such transactions are generally subject to tax liability under the Service
Occupation Tax Act. See 86 Ill. Adm. Code 140.140(l). (This is a GIL.)

September 15, 2011

Dear Xxxxx:
This letter is in response to your letter dated September 1, 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:
ABC has a question regarding the applicability of the following statute: 35 ILCS 120/2-5]
Exemptions. – Gross receipts from proceeds from the sale of the following
tangible personal property are exempt from the tax imposed by this Act:
(40)
Beginning January 2, 2010, materials, parts, equipment,
components, and furnishings incorporated into or upon an aircraft as part
of the modification, refurbishment, completion, replacement, repair, or
maintenance of the aircraft.
This exemption includes consumable
supplies used in the modification, refurbishment, completion, replacement,
repair, and maintenance of aircraft, but excludes any materials, parts,
equipment, components, and consumable supplies used in the
modification, replacement, repair, and maintenance of aircraft engines or
power plants, whether such engines or power plants are installed or
uninstalled upon any such aircraft. ‘Consumable supplies’ include, but are
not limited to, adhesive, tape, sandpaper, general purpose lubricants,
cleaning solution, latex gloves, and protective films. This exemption
applies only to those organizations that (i) hold an Air Agency Certificate
and are empowered to operate an approved repair station by the Federal
Aviation Administration, (ii) have a Class IV Rating, and (iii) conduct

operations in accordance with Part 145 of the Federal Aviation
Regulations. The exemption does not include aircraft operated by a
commercial air carrier providing scheduled passenger air service pursuant
to authority issued under Part 121 or Part 129 of the Federal Aviation
Regulations.
Facts:
-

An entity is registered with the State of Illinois to collect sales tax & to file income
tax returns.
The entity holds an Air Agency Certificate and runs an out-of-state FAA-approved
repair station.
The entity has a class IV rating.
The entity conducts operations in accordance with Part 145 of the Federal
Aviation Regulations.
That entity sends a small team of aircraft service technicians into the State of
Illinois to perform service or maintenance on a customer’s aircraft.
The bill to the customer includes charges for either labor or labor and parts.

Questions:
1.)

2.)

It’s understood that labor is not taxable in the State of Illinois. Per 35 ILCS
120/2-5(40), does the entity have to collect tax on any portion of the various
invoices mentioned above?
a.
Invoice with labor only.
b.
Invoice with labor and parts.
Please confirm the applicability of 35 ILCS 120/2-5(40) to repairs performed by
an authorized repair company for a customer.

Thank you in advance for your assistance with this matter. If you have any questions or
need any additional information, please do not hesitate to contact me.

DEPARTMENT’S RESPONSE:
We cannot determine from your letter what type of service or maintenance on the aircraft the
technicians are providing and, particularly, upon what parts of the aircraft is the service or
maintenance being performed. However, we hope you find the following helpful.
Unless an exemption applies, 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. 35 ILCS 120/2; 86 Ill. Adm. Code 130.101. 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. 35 ILCS 105/3; 86 Ill. Adm. Code 150.101.
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 unless an exemption applies. Thus,
where a business provides repair or maintenance services that are accompanied with the transfer of
tangible personal property, such transactions are generally subject to tax liability under the Service
Occupation Tax Act. See 86 Ill. Adm. Code 140.140(l).

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
serviceman's entire bill; (3) Service Occupation Tax on the serviceman's cost price if the serviceman
is a registered de minimis serviceman; or (4) Use Tax on the serviceman's cost price if the
serviceman is a de minimis serviceman and is not otherwise required to be registered under
Section 2a of the Retailers' Occupation Tax Act.
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.
As you noted, beginning January 1, 2010, Illinois provides an exemption from gross receipts
from the sale of the following tangible personal property:
“Materials, parts, equipment, components, and furnishings incorporated into or upon an
aircraft as part of the modification, refurbishment, completion, replacement, repair, or
maintenance of the aircraft. This exemption includes consumable supplies used in the
modification, refurbishment, completion, replacement, repair, and maintenance of
aircraft, but excludes any materials, parts, equipment, components, and consumable
supplies used in the modification, replacement, repair, and maintenance of aircraft
engines or power plants, whether such engines or power plants are installed or

uninstalled upon any such aircraft. "Consumable supplies" include, but are not limited
to, adhesive, tape, sandpaper, general purpose lubricants, cleaning solution, latex
gloves, and protective films. This exemption applies only to those organizations that (i)
hold an Air Agency Certificate and are empowered to operate an approved repair
station by the Federal Aviation Administration, (ii) have a Class IV Rating, and (iii)
conduct operations in accordance with Part 145 of the Federal Aviation Regulations.
The exemption does not include aircraft operated by a commercial air carrier providing
scheduled passenger air service pursuant to authority issued under Part 121 or Part
129 of the Federal Aviation Regulations.” 35 ILCS 120/2-5(40).
As you can see, this exemption is limited to organizations that meet specific criteria as set forth
in the statue and excludes any materials, parts, equipment, components, and consumable supplies
used in the modification, replacement, repair, and maintenance of aircraft engines or power plants,
whether such engines or power plants are installed or uninstalled upon any such aircraft.
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