When could a charity provide a T-shirt with a donation without owing Illinois Retailers' Occupation Tax?

Plain-English summary

A tax-exempt organization asked how Illinois tax applied when donors received a $10 T-shirt after making a $100 contribution, chose any payment at or above cost, or paid a fixed $30 amount described as $10 for the shirt and $20 as a contribution.

IDOR explained that an Illinois E number generally protected the organization's qualifying purchases. The organization's own retail sales of tangible property were still taxable unless one of three limited exceptions applied: sales to members, noncompetitive sales, or occasional dinners and similar activities.

Clothing sold by an exempt organization could qualify as a noncompetitive sale if every regulatory requirement was met and the buyer's dominant motive was donating to the charitable or religious organization rather than acquiring the property.

The letter did not calculate the taxable receipts for the requester's three examples and did not separately answer its detailed receipt questions.

Common questions

Did an E number automatically exempt the charity's own T-shirt sales? No.

What mattered for the noncompetitive-sale exception? The dominant motive had to be making a donation, not acquiring the shirt, and all regulatory requirements had to be met.

Did IDOR allocate the $100 or $30 payments? No.

Citations and references

• 86 Ill. Adm. Code 130.2005(a)(2) through (4)
• 86 Ill. Adm. Code 130.2007

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-12-0042.pdf

Original ruling text

ST 12-0042-GIL 07/27/2012 EXEMPT ORGANIZATIONS
Sales by exclusively charitable, religious or educational organizations are not subject to
the Retailers' Occupation Tax when it can be said that such selling is noncompetitive
with business establishments. 86 Ill. Adm. Code 130.2005(a)(3). (This is a GIL.)
July 27, 2012
Dear:
This letter is in response to your letter dated May 25, 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:
This is a request for a General Information Letter pursuant to the provisions of 2 Ill.
Admin. Code 1200.
I am requesting information from the Illinois Department of Revenue regarding the
amount subject to retailers’ occupation tax when a product is provided in conjunction
with a charitable contribution and the retailers’ occupation tax receipt requirements.
The organization is a tax-exempt entity that receives charitable contributions.
The organization often holds fundraisers where donors give donations and the
organization provides the donor with tangible personal property.
1.

The organization solicits contributions. As an incentive to contribute, the
organization provides donors with a $10 t-shirt in return for a $100
contribution. What amount, if any, is subject to sales tax?

2.

The organization conducts a ‘sale’ of t-shirts, where the donor receives a
t-shirt for a payment of any amount equal to or greater than the cost of the
t-shirt. For example, the organization sells t-shirts with a cost of $10. The
donor receives a t-shirt for a payment of $10 or more, and chooses to give
$100. The organization provides the donor with an acknowledgement of a
$90 contribution. What amount is subject to sales tax?

3.

The organization sells t-shirts for $30 as a fundraiser. $10 is the cost of
the t-shirt. $20 is a charitable contribution. The organization provides the

ST 12-0042-GIL
July 27, 2012
Page 2
donor with an acknowledgement of a $20 contribution. What amount is
subject to sales tax?
4.

What are the detailed receipt requirements for sales where retailers’
occupation tax is required to be collected?

5.

Is the organization required to provide the donor with a receipt indicating
the value of the t-shirt?

6.

Is the organization required to provide the donor with a statement that $ X
amount of sales tax was collected?

7.

If required to separately state retailers’ occupation tax on the receipt, does
the organization satisfy receipt requirements if the donor is provided with a
statement indicating that X% of sales tax is included in the $10 t-shirt?
For example, $10 (tax is included). Or does the organization need to
provide information such as: $9 t-shirt + $1 sales tax = $10.

Please contact me at X or XX if you have any questions or require additional
information.
Thank you for your assistance in this matter.
DEPARTMENT’S RESPONSE:
The Illinois Retailers’ Occupation Tax is imposed upon the total gross receipts received by retailers
who make sales of tangible personal property to Illinois end users. Unless the sales are specifically
exempted, such retailers must collect and remit the sales tax. See 86 Ill. Adm. Code 130.101.
Organizations that are recognized as non-profit under Internal Revenue Code Section 501(c)(3), are
not necessarily exempt organizations pursuant to Illinois tax law. Such organizations must obtain an
exemption identification number (an “E number”) to qualify. See 86 Ill. Adm. Code 130.2007.
Organizations that make application to the Department of Revenue and are determined to be
exclusively religious, educational, or charitable, receive an E number. The E number evidences that
the Department recognizes the organizations as exempt from incurring Use Tax when purchasing
tangible personal property in furtherance of their organizational purposes. If an organization does not
have an E number, then its purchases are subject to tax. Please be aware that currently only sales to
organizations holding the E number are exempt, not sales to individual members of the organization.
While organizations that have received an E number are, as a general matter, subject to Retailers’
Occupation Tax upon their own sales of tangible personal property, there are three limited exceptions
where such organizations are authorized to engage in a restricted amount of retail selling activity
without incurring Retailers' Occupation Tax liability. The limited exceptions available to not-for-profit
organizations described in 86 Ill. Adm. Code 130.2005 include: (1) Sales to Members (see 86 Ill.
Adm. Code 130.2005(a)(2)); (2) Noncompetitive Sales (see 86 Ill. Adm. Code 130.2005(a)(3)); and
(3) Occasional Dinners and Similar Activities (see 86 Ill. Adm. Code 130.2005(a)(4)).

ST 12-0042-GIL
July 27, 2012
Page 3
Sales of clothing items by exempt organizations may qualify as exempt noncompetitive sales if they
meet all of the requirements of 86 Ill. Adm. Code 130.2005(a)(3) and if the dominant motive of the
purchase is the making of a donation to the charitable or religious organization which conducts the
sale, rather than the acquisition of property.
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