Was a proposed sale of installed distributed-antenna-system equipment a taxable retail sale, a resale transaction, or a construction contract?

Plain-English summary

A company bought distributed antenna system equipment in several states, paid sales tax and freight, installed the equipment without using or modifying it, and proposed selling it at cost to another company with a bill of sale.

IDOR outlined several possible tax paths but did not choose one for the transaction.

When property is bought with the intention of resale, the initial purchase is a resale purchase and the later sale to the user is a taxable retail sale. A proper certificate with a valid registration or resale number generally ends the seller's liability; without it, the sale is presumed not to be for resale, although other evidence may rebut the presumption.

If the installed property was permanently incorporated into real estate, the contract was a construction contract. The contractor was the end user and owed Use Tax on cost, could receive credit for tax properly due and paid to another state, and could not bill the customer a collected “sales tax,” although contractual reimbursement was possible.

The GIL also quoted a special rule for a single specified-price construction contract improving real estate with video, security, or telecommunications systems: the contractor could owe Use Tax even if some items were not permanently affixed.

Common questions

Did IDOR decide that the proposed sale was taxable? No. It stated alternative rules.

What supports a resale purchase? A valid resale certificate, or potentially other evidence proving actual resale.

What if the DAS equipment became real property? The contractor generally owed Use Tax on cost as the end user.

Did the GIL approve a credit for the tax already paid? It cited the credit for tax properly due and paid to another state but did not decide the requester's specific credit claim.

Citations and references

• 86 Ill. Adm. Code 130.201, 130.210, 130.1405, 130.1940, and 130.2075
• 86 Ill. Adm. Code 150.310
• 35 ILCS 120/1
• Rock Island Tobacco & Specialty Co. v. IDOR, 87 Ill. App. 3d 476 (1980)

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-12-0018.pdf

Original ruling text

ST 12-0018-GIL 03/27/2012 SALE FOR RESALE
This letter addresses sales for resale. See 86 Ill. Adm. Code 130.1405. (This is a GIL.)

March 27, 2012

Dear Xxxxx:
This letter is in response to your letter dated February 8, 2012, 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 is proposing a bulk deal with XYZ where ABC purchased DAS equipment in eight
states on XYZ’s behalf. The purchase price ABC paid for the assets included sales tax
and freight. ABC subsequently installed the equipment but has not used it. The assets
were not modified before or after installation. If XYZ purchases the assets they will be
sold at cost (assets, sales tax, freight and installation costs) and ABC will convey
ownership to XYZ. The sale is a contract sale and ABC will issue a bill of sale.
The question is: does this transaction define a taxable event in Illinois? If the
transaction is taxable is ABC eligible for a credit on a future sales & use tax filing?
DAS equipment is tangible personal property upon acquisition and includes wireless
transmitting equipment, cable, antennas and repeaters.
Should you have any questions or need additional information please contact me.

DEPARTMENT’S RESPONSE:
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.
When a person purchases items of tangible personal property with the intention of reselling
them to purchasers for use or consumption, that person engages in making retail sales of tangible
personal property. This makes the initial purchase a purchase for resale, and the subsequent sale is
a taxable sale at retail subject to Illinois Retailers' Occupation and Use Tax liabilities. See 86 Ill. Adm.
Code 130.201 and 130.210. For general information regarding resale certificates, the Department’s
regulation for resale certificates, “Seller's Responsibility to Obtain Certificates of Resale and
Requirements for Certificates of Resale,” is found at 86 Ill. Adm. Code 130.1405.
The obligations of a seller with respect to accepting a Certificate of Resale were addressed in
Rock Island Tobacco and Specialty Company v. Illinois Department of Revenue, 87 Ill.App.3d 476,
409 N.E.2d 136, 42 Ill. Dec. 641 (3rd Dist. 1980). The Rock Island court held that when a retailer
obtains a proper Certificate of Resale that contains a registration or resale number that is valid on the
date it is given, the retailer’s liability is at an end. If the purchaser uses that item himself or herself
(i.e., it was not purchased for resale), the Department will proceed against the purchaser, not the
retailer, provided the above stated conditions are met. The purchaser’s registration or reseller number
can be verified at the Department’s website by clicking on the “Tax registration inquiry” box.
Failure to present an active registration number or resale number and a certification to the
seller that a sale is for resale creates a presumption that a sale is not for resale. This presumption
may be rebutted by other evidence that all of the seller’s sales are sales for resale, or that a particular
sale is a sale for resale. For example, other evidence that might be used to document a sale for
resale, when a registration number or resale number and certification to the seller are not provided,
could include an invoice from the purchaser to his customer showing that the item was actually
resold, along with a statement from the purchaser explaining why it had not obtained a resale number
and certifying that the purchase was a purchase for resale in Illinois. The risk run by companies in
accepting such a certification and the risk run by purchasers in providing such a certification is that an
Illinois auditor is more likely to require that more information be provided as evidence that the
particular sale was, in fact, a sale for resale.
A contract that provides for both the sale and installation of tangible personal property that is
permanently affixed or incorporated into a structure is considered a construction contract. The tax
liabilities regarding construction contractors in Illinois may be found at 86 Ill. Adm. Code 130.1940
and 130.2075 on the Department’s Internet website. The term construction contractor includes
general contractors, subcontractors, and specialized contractors such as landscape contractors.
In Illinois, construction contractors are deemed end users of tangible personal property
purchased for incorporation into real property. As end users of such tangible personal property, these
contractors incur Use Tax liability for such purchases based upon their cost price of the tangible
personal property. See 86 Ill. Adm. Code 130.1940 and 86 Ill. Adm. Code 130.2075. Therefore, any
tangible personal property that a construction contractor purchases that will be permanently affixed to

or incorporated into real property in this State will be subject to Use Tax. If such contractors did not
pay the Use Tax liability to their suppliers, those contractors must self assess their Use Tax liability
and pay it directly to the Department. If the contractors have already paid a tax in another state
regarding the purchase or use of such property, they will be entitled to a credit against their Illinois
Use Tax liability to the extent that they have paid tax that was properly due to another state. See 86
Ill. Adm. Code 150.310.
It is important to note that since construction contractors are the end users of the materials that
they permanently affix to real estate, their customers incur no Use Tax liability and the construction
contractors have no legal authority to collect the Use Tax from their customers. However, many
construction contractors pass on the amount of their Use Tax liabilities to customers in the form of
higher prices or by including provisions in their contracts that require customers to “reimburse” the
construction contractor for his or her tax liability. Please note that this reimbursement cannot be billed
to a customer as “sales tax,” but can be listed on a bill as a reimbursement of tax. The choice of
whether a construction contractor requires a tax reimbursement from the customer or merely raises
his or her price is a business decision on the construction contractor’s part.
Contractors incur Retailers’ Occupation Tax upon the sale of items that are not permanently
affixed to real estate. However, please note that Section 1 of the Retailers' Occupation Tax Act states
that "[c]onstruction contracts for the improvement of real estate consisting of video, security, and all
telecommunication systems do not constitute engaging in a business of selling tangible personal
property at retail within the meaning of this Act if they are sold at one specified contract price".
Consequently, even if some items used in such contracts are not permanently affixed, the liability
incurred by the contractor is a Use Tax liability if the provisions of this section are met.
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