Was a printing broker exempt from tax because it sold custom-designed printed items as a service and subcontracted the physical printing?

Plain-English summary

A printing broker designed custom letterhead, stationery, business cards, and forms, outsourced the physical printing, and delivered finished products to clients. It argued that custom work was a tax-free service.

IDOR said custom or special-order print items generally were not stock goods and were subject to Service Occupation Tax rather than being completely exempt. Transferring the printed property incident to service required the broker to use one of four serviceman methods: separately stated property price; 50% of the customer bill; Service Occupation Tax on cost for a registered de minimis serviceman; or Use Tax on cost for a qualifying unregistered de minimis serviceman.

For subcontracted printing, the broker was the primary serviceman and the printer the secondary serviceman. The broker's cost was the secondary printer's separately stated property price, or presumptively 50% of the printer's total charge when property cost was not stated.

When both parties were registered, the broker gave the printer a resale certificate and handled tax under its own method. If both were unregistered de minimis servicemen, the broker could avoid duplicate Use Tax when the printer paid Use Tax on its transferred property and certified that fact in writing. That certification option did not work when the primary broker was registered and the secondary printer was unregistered.

Common questions

Was custom printing entirely tax-free? No.

What if the printer did not separately state property cost? The broker's cost was presumed to be 50% of the printer's total charge.

Could the broker use a resale certificate? Yes under the first three methods with a valid certificate; the unregistered de minimis method treated it as the user.

Citations and references

• 86 Ill. Adm. Code 130.1995(b), 130.2000, and 130.1405
• 86 Ill. Adm. Code 140.101 through 140.109 and 140.301(a)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0008.pdf

Original ruling text

ST 12-0008-GIL 02/24/2012 SERVICE OCCUPATION TAX
The Service Occupation Tax is a tax imposed upon servicemen engaged in the business of
making sales of service in this State, based on the tangible personal property transferred
incident to sales of service. See 86 Ill. Adm. Code Part 140. (This is a GIL.)

February 24, 2012

Dear Xxxxx:
This letter is in response to your letter dated December 5, 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:
I am requesting a private letter ruling on behalf of my client,. Enclosed please find a
form IL-2848 Power of Attorney allowing me to represent CLIENT in this matter.
CLIENT is a printing broker. They provide graphic arts services based on their clients’
specifications. They design letterhead, stationary, business cards, and other forms
specialized to each client. Once a design is agreed on by their client, CLIENT farms the
work of actually printing the items out to a third party printer. CLIENT then supplies the
final product to their client.
Attached please find Title 86, Section 130.2000 Persons Engaged in the Printing,
Graphic Arts, or Related Occupations, and Their Suppliers. According to this document,
it appears that CLIENT qualifies as a person engaged in the graphic arts that is not
liable for sales tax due to the special order and personalized nature of the end product
supplied to his clientele. CLIENT is a new business and has come across a few printers
who insist that CLIENT provide a resale certificate or pay sales tax on 50% of the
invoice. However, it is our opinion that CLIENT is exempt from any such tax due to the
fact that they are providing a service and the transaction, therefore, is exempt from
sales tax. We request a private letter ruling on whether or not CLIENT is liable for sales
tax on the purchase or resale of the printed items as described above.

There is no audit or litigation pending with the Department. To the best of my
knowledge and that of the taxpayer, the Department has not previously ruled on the
same or a similar issue for the taxpayer or a predecessor and that the taxpayer, or any
representatives, have not previously submitted the same or a similar issue to the
Department that were withdrawn before a letter ruling was issued. We are unable to
locate an authority contrary to our views.

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 has decided to respond with a GIL.
Graphic Arts
For your information, please refer to 86 Ill. Adm. Code 130.2000, which is the regulation for
"Persons Engaged in the Printing, Graphic Arts or Related Occupations, and Their Suppliers." Items
that would not be considered stock or standard items and would 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 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 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. 86 Ill. Adm. Code 130.1995(b).
Service Occupation Tax Act
When a company contracts to print custom printed items, a special order printing situation may
exist. 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.
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.
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 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.
Multi-service situations exist where a primary serviceman subcontracts work to a secondary
serviceman. In multi-service situations, a primary serviceman’s cost price is determined either by the
separately stated selling price of the tangible personal property transferred from a secondary
serviceman, or if the secondary serviceman does not separately state the cost of goods, it is
presumed that the primary serviceman’s cost price is 50% of the secondary serviceman’s total
charge. See 86 Ill. Adm. Code 140.301(a).
When both primary servicemen and secondary servicemen are registered, primary servicemen
provide secondary servicemen with a Certificate of Resale. A primary serviceman would then incur
Service Occupation Tax based upon the separately stated selling price of the property, 50% of the bill
to the service customers or as outlined in method three described above. Upon selling their product,
servicemen are required to collect the corresponding Service Use Tax from their customers.
Please note that if an unregistered de minimis serviceman subcontracts service work to
another unregistered de minimis secondary serviceman, the primary serviceman does not incur a Use
Tax liability if the secondary serviceman (i) has paid or will pay Use Tax on his or her cost price of
any tangible personal property transferred to the primary serviceman and (ii) certifies that fact in
writing to the primary serviceman. This certification option is only available in multi-service situations
when both the primary and secondary servicemen are unregistered and de minimis. If the primary
serviceman is registered and the secondary serviceman is unregistered it will not work.
Sale For Resale

In regards to the first three ways a serviceman’s liability may be calculated, we refer you to the
Department’s regulation at 86 Ill. Adm. Code 130.1405, which describes the requirements for
Certificates of Resale and can be found on the Department’s website. In order for a sale for resale to
qualify for an exemption from Retailers’ Occupation Tax, the seller must keep on file a valid
Certificate of Resale as set forth in the regulation. Acceptance of a valid Certificate of Resale relieves
the seller of liability with respect to the purchaser’s use of the property purchased.
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