How does Illinois tax custom printed matter transferred by graphic-arts servicemen, including registered and unregistered de minimis servicemen?

Plain-English summary

Illinois declined to issue the requested Private Letter Ruling, but provided general guidance on how custom printers and other servicemen account for tax on tangible personal property transferred with a service.

Special-order or custom printed matter generally falls under the Service Occupation Tax because it usually cannot be sold to another customer for substantially the same price. Stock or standard items of general utility generally fall under Retailers' Occupation Tax instead.

Four ways to determine the tax base

The GIL describes four methods:

1. The separately stated selling price of the tangible personal property transferred with the service.
2. Fifty percent of the serviceman's entire bill when the property price is not separately stated. Under the first two methods, the base cannot be less than the serviceman's cost.
3. Service Occupation Tax on cost price for a registered de minimis serviceman.
4. Use Tax on cost price for a de minimis serviceman not otherwise required to register under the Retailers' Occupation Tax Act.

For graphic-arts production, the GIL describes a serviceman as de minimis when the annual aggregate cost of transferred property is less than 75% of annual gross receipts from service transactions.

Registered and unregistered de minimis servicemen differ

A registered de minimis serviceman pays Service Occupation Tax, including local taxes, on the cost of property transferred with the service. It files returns, does not pay tax to suppliers, and gives suppliers resale certificates for property transferred to customers.

An unregistered de minimis serviceman pays Use Tax to suppliers or self-assesses Use Tax on purchases from unregistered out-of-state suppliers. It is not liable for Service Occupation Tax and is not authorized to collect a "tax" from service customers.

When a de minimis serviceman incurs Service Occupation Tax on cost, it must collect corresponding Service Use Tax from the customer based on that cost. Any excess collection must be refunded to the customer or paid to the Department.

Exemptions may still apply

Depending on the chosen tax base, servicemen may claim exemptions such as interstate commerce or accept certificates including resale certificates and exemption identification numbers, subject to the cited regulations.

What this means for you

Custom printers

First determine whether the output is custom/personalized or a stock item. That classification affects whether the transaction generally follows Service Occupation Tax or Retailers' Occupation Tax rules.

De minimis graphic-arts servicemen

Registration changes who remits tax and what may be collected from the customer. Do not assume the 50%-of-bill method is available merely because a subcontractor did not charge tax; the applicable method depends on the serviceman's status and election under the regulations.

Servicemen selling to exempt customers

The GIL recognizes exemption certificates and exemption identification numbers under specified tax-base methods, but it does not issue a binding ruling on the requester's three proposed situations.

Common questions

Q: Are custom printed items taxed as ordinary retail sales?
A: Generally no when they are special-order items that cannot be sold to another customer for substantially the same price; those transactions generally follow Service Occupation Tax rules.

Q: Can a serviceman use 50% of the total bill as the tax base?
A: That is one method described when the property price is not separately stated, but the base cannot be less than the serviceman's cost.

Q: Can an unregistered de minimis serviceman collect tax from the service customer?
A: No. The GIL says that serviceman pays or self-assesses Use Tax and is not authorized to collect a "tax" from customers.

Q: What if a registered de minimis serviceman collects too much Service Use Tax?
A: The excess must be refunded to the customer or paid to the Department.

Citations and references

• 2 Ill. Adm. Code 1200.110(a)(4) — Department discretion to decline a PLR request.
• 86 Ill. Adm. Code 130.1995(b) — personalized items such as calling cards, letterheads, labels, and similar products.
• 86 Ill. Adm. Code 140.101 — Service Occupation Tax bases and rates.
• 86 Ill. Adm. Code 140.106(d), 140.108(a)(2)(B), and 140.109(a)(3)-(4) — exemptions and de minimis servicemen.
• 86 Ill. Adm. Code 160.101 — Service 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-11-0104.pdf

Original ruling text

ST 11-0104-GIL 12/28/2011 SERVICE OCCUPATION TAX
This letter concerns tax imposed on tangible personal property transferred incident to sales of
service. See 86 Ill. Adm. Code Part 140. (This is a GIL.)

December 28, 2011

Dear Xxxxx:
This letter is in response to your letters dated November 22, and December 16, 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 dated November 22, 2011, you have stated and made inquiry as follows:
Background Facts
Corporation is a graphic arts ‘de-minimis’ servicemen [sic] (as defined in §140.120)
duly registered with the Illinois Department of Revenue since DATE, 2011. Prior to that
date, CORPORATION operated under the assumption that it was not required to be
registered as a de-minimis servicemen [sic] with the Illinois Department of Revenue.
Further, upon learning that most of the CORPORATION’s Illinois vendor/suppliers are
not registered with the Illinois Department of Revenue, presumably because
subcontractors are also de-minimis servicemen not required to register,
CORPORATION retained the professional tax services of a licensed tax representative.
Additionally, there are advantages to being registered as a de-minimis servicemen. [sic]
Accordingly, as the tax representative for the CORPORATION, we were retained
(amongst other things) for the specific purpose of performing a self-audit to ensure that
the accurate amount of sales/use tax is determined and paid to the Illinois Department
of Revenue within a short period of time.
Further, we immediately requested and shortly thereafter received written approval from
the Board of Appeals on behalf of the CORPORATION’s Voluntary Disclosure
Application (VDA) as submitted on Form BOA-2, in accordance with §210.126. See
attached approval letter from INDIVIDUAL as well as another letter sent via email
approving a 60 day extension of time until DATE, 2012.

CORPORATION is a ‘de-minimis’ serviceman who produces custom printed matter at
its printing facility located in CITY, IL. Additionally, CORPORATION verbally contracts
with other commercial printers/brokers hereinafter referred to as ‘sub-contractors’ [sic]
who are also presumably de-minimis servicemen. These other Illinois de-minimis subcontractors [sic] provide all the tangible personal property required to produce the
custom printed mater. Furthermore, in most instances, these subcontractors are also
contractually responsible for shipping the finished custom printed matter to said
CORPORATION’s customers, most of which are located throughout the State of Illinois.
Lastly, these de-minimis servicemen sub-contractors [sic] have invoiced
CORPORATION, without charging said CORPORATION the Illinois service occupation
tax or the Illinois service use tax on either their actual cost price or (in the alternative) on
50% of their total invoice price to said CORPORATION.
More importantly,
CORPORATION always communicated that transactions were taxable, and therefore,
never offered a resale certificate to any of its sub-contractors. [sic]
Next, CORPORATION produces and/or sub contracts [sic] with other commercial deminimis servicemen sub-contractors/brokers [sic] to produce custom printed matter for
exempt organizations, including but not limited to municipalities and IRC 501(c)(3)
organizations under Title 26 USC 501, who have provided said CORPORATION a copy
of their Illinois tax exemption identification number a/k/a an ‘E number’ in support of
their exemption from Illinois sales & use tax.
Private Letter Ruling Request
The purpose of this private letter ruling request is to secure a definitive and articulate
answer including confirmation that the Illinois Administrative Code as cited by us is
correct as it relates to each of the following three (3) independent situations:
1)

Please confirm your agreement that in a situation whereby the
CORPORATION contracts with a sub-contractor [sic], CORPORATION
has the option to self-assess the Illinois service use tax at a rate of 6.25%
on 50% of the sub-contractor’s [sic] invoice price, as supported by
§140.101(e) & §130.2000(c)(3). Further, in this same situation, since
CORPORATION is a de-minimis servicemen [sic] considered to be the
end user, and therefore, CORPORATION is not allowed to collect a ‘tax’
from its customer, as supported by §140.108(a)(3) and §140.108(4)(d).

2)

Please confirm your agreement that in a situation whereby the
CORPORATION directly produces custom printed matter at its own
facility, CORPORATION has the option to self-assess Illinois service use
tax at a rate of 6.25% on 50% of its vendor’s invoice price thereby
representing the total cost of ingredients, e.g. ink, paper, envelopes, etc.
i.e. the value of the tangible personal property transferred incident to the
performance of services as supported by §140.145(d) and
§140.108(a)(3). Further, in this same situation, since CORPORATION is
a de-minimis servicemen [sic] considered to be the end user, and
therefore, CORPORATION is not allowed to collect a ‘tax’ from its
customer, as supported by §140.108(a)(3) and §140.108(4)(d).

3)

Please confirm your agreement that CORPORATION can purchase its ink,
paper, and other raw material ingredients tax-free from its vendor/supplier
whenever its customer is an exempt organization that has provided a valid
Illinois tax exemption identification number (a/ka [sic] as an E number) to
said CORPORATION who in turn provided the E number to its
vendor/supplier, as required and supported by §130.120(i) and
§140.108(a)(2)(A).

In accordance with the requirements for requesting a private letter ruling, specifically, Ill.
Admin. Code 2 §1200.110, CORPORATION through its tax representative has been
authorized pursuant to a duly executed Illinois Power of Authority [sic] by said
CORPORATION through the authority conferred upon its President & Sole-shareholder.
Accordingly, I hereby represent that said CORPORATION is not under audit nor does
said CORPORATION have any litigation pending before the Illinois Department of
Revenue. Further, to the best of my knowledge, said CORPORATION, has never
requested that the Illinois Department of Revenue rule on the same or similar issue for
said CORPORATION.
Next, due to the fact that the VDP substitute returns [sic] extended due date is fast
approaching, I would really appreciate your written response to the Private Letter Ruling
request on or before DATE, 2011 as the CORPORATION wants to file and pay the
correct amount of tax prior to DATE, 2011. Further, in the event you have any
questions or would like to schedule an in-person meeting so that I can provide more
clarification and/or more information, please call me as it is extremely important that the
CORPORATION receive the valuable benefit of certainty that is afforded by virtue of the
issuance of a favorable Illinois private letter ruling by the Illinois Department of
Revenue-Legal Division.
Lastly, in the event you cannot confirm the tax research provided in each of the three
independent situations, i.e. you cannot issue a favorable private letter ruling, please call
me to discuss the reasons why as well as to give me the opportunity to formally modify
the request for a private letter ruling to include only those favorable situation(s) as well
as the right to formally withdraw the entire request for a private letter ruling. Again,
thank you very much for your time.
(The referenced tax research material is omitted.)
In your letter dated December 16, 2011, you have stated and made inquiry as follows:
Background Facts
Corporation is a graphic arts ‘de-minimis’ servicemen [sic] (as defined in §140.120)
duly registered with the Illinois Department of Revenue since DATE, 2011. Prior to that
date, CORPORATION operated under the assumption that it was not required to be
registered as a de-minimis servicemen [sic] with the Illinois Department of Revenue.
Further, upon learning that most of the CORPORATION’s Illinois vendor/suppliers are
not registered with the Illinois Department of Revenue, presumably because
subcontractors are also de-minimis servicemen not required to register,
CORPORATION retained the professional tax services of a licensed tax representative.
Additionally, there are advantages to being registered as a de-minimis servicemen [sic].
Accordingly, as the tax representative for the CORPORATION, we were retained
(amongst other things) for the specific purpose of performing a self-audit to ensure that

the accurate amount of sales/use tax is determined and paid to the Illinois Department
of Revenue within a short period of time.
Further, we immediately requested and shortly thereafter received written approval from
the Board of Appeals on behalf of the CORPORATION’s Voluntary Disclosure
Application (VDA) as submitted on Form BOA-2, in accordance with §210.126. See
attached approval letter from INDIVIDUAL, dated DATE, 2011 as well as another letter
sent via email approving a 60 day extension of time until DATE, 2012.
CORPORATION is a ‘de-minimis’ serviceman who produces custom printed matter at
its printing facility located in CITY, IL. Further, CORPORATION produces more than
99% custom printed matter taxable under the Service Occupation Tax or the Service
Use Tax as provide [sic] for under §130.1995, and only 1% stock printed matter, which
we agree is subject to the Retailers Occupation Tax. Additionally, CORPORATION
verbally contracts with other commercial printers/brokers hereinafter referred to as ‘subcontractors’ [sic] who are also presumably de-minimis servicemen. These other Illinois
de-minimis sub-contractors [sic] provide all the tangible personal property required to
produce the custom printed matter.
Furthermore, in most instances, these
subcontractors are also contractually responsible for shipping the finished custom
printed matter to said CORPORATION’s customers, most of which are located
throughout the State of Illinois. Lastly, these de-minimis servicemen sub-contractors
[sic] have invoiced CORPORATION, without charging said CORPORATION the Illinois
service occupation tax or the Illinois service use tax on either their actual cost price or
(in the alternative) on 50% of their total invoice price to said CORPORATION. More
importantly, CORPORATION always communicated that transactions were taxable, and
therefore, never offered a resale certificate to any of its sub-contractors [sic]. Next,
CORPORATION produces and/or sub contracts [sic] with other commercial de-minimis
servicemen sub-contractors/brokers [sic] to produce custom printed matter for exempt
organizations, including but not limited to municipalities and IRC 501(c)(3) organizations
under Title 26 USC 501, who have provided to said CORPORATION a copy of their
Illinois tax exemption identification number a/k/a an ‘E number’ in support of their
exemption from Illinois sales & use tax.
Private Letter Ruling Request
The purpose of this private letter ruling request is to secure a definitive and articulate
answer including confirmation that the Illinois Administrative Code as cited by us is
correct as it relates to each of the following three (3) independent situations:
1)

Please confirm your agreement that in a situation whereby
CORPORATION contracts with a sub-contractor [sic], CORPORATION
has the option to self-assess the Illinois service use tax at a rate of 6.25%
on 50% of the sub-contractor’s [sic] invoice price, as supported by
§140.101(e) & §130.2000(c)(3) for the time period prior to DATE, 2011,
when CORPORATION was not registered. Thereafter, the SOT rate
applies. Further, in this same situation, since CORPORATION is a deminimis servicemen [sic] considered to be the end user, CORPORATION
is not allowed to collect a ‘tax’ from its customer, as supported by
§140.108(a)(3) and §140.108(4)(d).

2)

Please confirm your agreement that in a situation whereby the
CORPORATION directly produces custom printed matter at its own
facility, CORPORATION has the option to self-assess Illinois service use
tax at a rate of 6.25% on 50% of its vendor’s invoice price thereby
representing the total cost of ingredients, e.g. ink, paper, envelopes, etc.
i.e. the value of the tangible personal property transferred incident to the
performance of services as supported by §140.145(d) and §140.108(a)(3)
for the time period prior to DATE, 2011, when CORPORATION was not
registered. Thereafter the SOT rate applies. Further, in this same
situation, since CORPORATION is a de-minimis servicemen [sic]
considered to be the end user, CORPORATION is not allowed to collect a
‘tax’ from its customer, as supported by §140.108(a)(3) and
§140.108(4)(d).

3)

Please confirm your agreement that CORPORATION can purchase its ink,
paper, and other raw material ingredients tax-free from its vendor/supplier
whenever its customer is an exempt organization that has provided a valid
Illinois tax exemption identification number (a/ka [sic] as an E number) to
said CORPORATION who in turn provided the E number to its
vendor/supplier, as required and supported by §130.120(i) and
§140.108(a)(2)(A).

In accordance with the requirements for requesting a private letter ruling, specifically, Ill.
Admin. Code 2 §1200.110, CORPORATION through its tax representative has been
authorized pursuant to a duly executed Illinois Power of Authority [sic] by said
CORPORATION through the authority conferred upon its President & Sole-shareholder.
Accordingly, I hereby represent that said CORPORATION is not under audit nor does
said CORPORATION have any litigation pending before the Illinois Department of
Revenue. Further, to the best of my knowledge, said CORPORATION, has never
requested that the Illinois Department of Revenue rule on the same or similar issue for
said CORPORATION.
Next, due to the fact that the VDP substitute returns [sic] extended due date is fast
approaching, I would really appreciate your written response to the Private Letter Ruling
request on or before DATE, 2011 as the CORPORATION wants to file and pay the
correct amount of tax prior to DATE, 2011. Further, in the event you have any
questions or would like to schedule an in-person meeting so that I can provide more
clarification and/or more information, please call me as it is extremely important that the
CORPORATION receive the valuable benefit of certainty that is afforded by virtue of the
issuance of a favorable Illinois private letter ruling by the Illinois Department of
Revenue-Legal Division.
Lastly, in the event you cannot confirm the tax research provided in each of the three
independent situations, i.e. you cannot issue a favorable private letter ruling, please call
me to discuss the reasons why as well as to give me the opportunity to formally modify
the request for a private letter ruling to include only those favorable situation(s) as well
as the right to formally withdraw the entire request for a private letter ruling. Again,
thank you very much for your time.
(The referenced tax research material is omitted.)
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. Although we are not
providing you with a Private Letter Ruling, we hope the following general information will be of
assistance.
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. 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 86 Ill. Adm. Code
150.101. These taxes comprise what is commonly known as "sales" tax in Illinois.
As a general rule, when special order or custom products are items of general utility and serve
substantially the same function as stock or standard items, the products will be subject to the
Retailers’ Occupation Tax when sold. Items that would not be considered stock or standard items
and could not be sold to someone other than the purchaser for substantially the same price would not
be subject to the Retailers’ Occupation Tax when sold, but would generally be subject to the Service
Occupation Tax. Special order or custom print items are generally not considered stock or standard
items and are generally not able to be sold to someone other than the purchaser for substantially the
same price. Therefore special order or custom print items are generally subject to the Service
Occupation Tax.
The Department’s regulation 86 Ill. Adm. Code 130.1995 “Personalizing Tangible Personal
Property” provides guidance regarding when Retailers’ Occupation Tax is applicable and when
Service Occupation Tax is applicable. Section 130.1995(b) provides that “[s]ellers of personalized
business calling cards, greeting cards, letterheads, envelopes, labels, name plates, badges,
medallions and the like do not incur Retailers' Occupation Tax liability on their receipts from such
sales because they are primarily engaged in a service occupation in producing or procuring such
items, which have no commercial value for their customers.”
Under the Service Occupation Tax, servicemen are taxed on tangible personal property
transferred as an incident of sales of service. See 86 Ill. Adm. Code 140.101, which sets forth the
basis and rate of the Service Occupation Tax. Under the Service Use Tax Act, a tax is imposed on
the privilege of using, in Illinois, tangible personal property that is received anywhere as an incident to
a purchase of service from servicemen. See 86 Ill. Adm. Code 160.101, which describes the nature
of the tax.
The liability of servicemen engaged 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.
Service Use Tax must be collected from service customers by a de minimis serviceman
incurring Service Occupation Tax liability on his cost price and must be based upon the serviceman's
corresponding cost price of the tangible personal property transferred. Any tax collected over this
amount constitutes an overcollection of tax that must be refunded to the service customer, or if not
refunded to the service customer, paid to the Department. The tax need not be separately stated on
the service billing unless so requested by the service customer. 86 Ill. Adm. Code 140.109(a)(4).
A serviceman who incurs SOT on his or her selling price is authorized to claim any exemption
provided for in the Service Occupation Tax Act. For example, he or she may claim the interstate
commerce exemption or accept various exemption certificates from his or her customers (e.g.,
Certificates of Resale, exemption identification numbers). 86 Ill. Adm. Code 140.106(d). A de
minimis serviceman incurring Service Occupation Tax liability on his or her cost price also is
authorized to claim any of the various exemptions provided for in the Service Occupation Tax Act.
For example, he may claim the interstate commerce exemption or accept various exemption
certificates from his customers (e.g., he can accept Certificates of Resale). 86 Ill. Adm. Code
140.109 (a)(3). The Department has also determined that a de minimis serviceman incurring a Use
Tax liability may claim any of the exemptions, except as provided in subsection (a)(2)(C), authorized
under the Service Occupation Tax Act. De minimis servicemen incurring Use Tax liability may
likewise claim the interstate commerce exemption, which is more fully explained at 86 Ill. Adm. Code
130.605. 86 Ill. Adm. Code 140.108(a)(2)(B).
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