How did Illinois tax dealership entrance towers or signs that were installed on concrete foundations?

Plain-English summary

A seller bought finished dealership entrance towers, hired a third party to anchor them to concrete foundations, and billed dealers or general contractors for the product, freight, and installation.

IDOR explained three possible regimes without expressly classifying the specific tower. A sign with general commercial value remained a taxable retail sale, and installation was taxable unless separately agreed. A uniquely customized sign with no value to anyone else was treated as a service transaction if it remained personal property.

If the sign or tower was permanently affixed to real estate, the installer was a construction contractor and the end user of the materials. The contractor owed Use Tax on material cost and did not make a taxable retail sale of the installed property. The letter said signs attached to poles set in concrete or inserted into a building and wired were permanently attached.

Shipping was excluded only when separately agreed and reflective of actual shipping cost; handling and any excess over actual shipping cost remained taxable in a retail-sale situation.

Common questions

Did IDOR definitively classify this entrance tower? No. It supplied the governing rules and examples.

Who paid tax when property became part of the real estate? The construction contractor owed Use Tax on its material cost.

Was separately listed freight automatically exempt? No. It had to be separately agreed and reflect actual shipping cost.

Citations and references

• 86 Ill. Adm. Code 130.1940 and 130.2075
• 86 Ill. Adm. Code 130.2155 and 140.101
• 86 Ill. Adm. Code 130.410 and 130.450

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2013.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2013/st-13-0022.pdf

Original ruling text

ST 13-0022-GIL 04/30/2013 CONSTRUCTION CONTRACTORS
When a construction contractor permanently affixes tangible personal property to real
property, the contractor is deemed the end user of that tangible personal property. As
the end user, the contractor incurs Use Tax on the cost price of that tangible personal
property. See 86 Ill. Adm. Code 130.2075. (This is a GIL.)
April 30, 2013
Dear:
This letter is in response to your letter received on March 19, 2013, 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:
Could you please forward me a Private Letter Rulings [sic] on whether “1. Entry Towers”
at DEALERSHIP would be considered Real Property or Personal Tangible Property and

2. clarification of how taxes are to be applied.
   The structure is free standing and stands proud of the main building by eighteen inches.
   It is installed to a concrete foundation on a series of anchor bolts.
   There is a video demonstration of how these Towers are installed at XXXX that may
   help with the understanding of what the Towers are and whether they should be
   considered Real Property or Personal Tangible Property.
   COMPANY is purchasing these towers as finished good from the manufacturer and
   hiring a third party to install them for us. We are then invoicing the dealers directly or
   General Contractor for the Supply, Freight and Install.
   Your confirmation on if the “Entrance Towers” will be considered Real Property or
   Personal Tangible Property and how Taxes are to be paid and on what they are to be
   paid on would be greatly appreciated.
   Ex: Taxable to the dealer or General Contractor on selling price including Product,
   Transport and Install; Not Taxable to the dealer or General Contractor but amount of tax
   must be paid by the seller (COMPANY) based on cost of materials; Taxable on Product
   only etcetera.
   Should you require any further info or clarification please do not hesitate to contact me.

ST 13-0022-GIL
April 30, 2013
Page 2

DEPARTMENT’S RESPONSE:
A person who sells signs that have commercial value (i.e., value to persons other than the
purchasers) incurs Retailers’ Occupation Tax (sales tax) liability when making such sales, even if
such signs are produced on special order for the purchaser. Examples of signs having such
commercial value would be ones that spell out “real estate”, “insurance,” or “hamburgers,” and which
do not spell out the name of the purchaser nor the brand name of the purchaser’s product and which
are not otherwise similarly individualized. See 86 Ill. Adm. Code 130.2155 regarding vendors of
signs. When a sign that has commercial value is sold and installed, the installation charge is also
subject to Retailers’ Occupation Tax unless there is a separate agreement for the installation charge.
See 86 Ill. Adm. Code 130.450.
If the sign vendor produces a sign on special order of the customer and the sign is so specialized that
it would have no commercial value to anyone other than that particular customer who placed the
order, the sign vendor would not incur Retailers’ Occupation Tax liability. These transactions would
be subject to liability under the Service Occupation Tax Act and the sign vendor would be considered
a serviceman. See generally, 86 Ill. Adm. Code 140.101.
All of the above assumes that the signs remain tangible personal property after installation. If the
signs were permanently affixed structurally as real estate, then there would be different tax
consequences. Under Illinois law, a person who takes tangible personal property off the market and
converts it into real estate is deemed a construction contractor and is the legal end-user of the
tangible personal property. The construction contractor, as the user, incurs Illinois Use Tax and local
Retailers’ Occupation Tax reimbursement liabilities when the tangible personal property that will be
converted into real estate is purchased from registered Illinois suppliers. If such items were
purchased from suppliers that did not collect the tax, the person who converts the tangible personal
property into real estate is required to self-assess and remit the Use Tax to the Department based
upon the cost price of the property. For information on construction contractors, see 86 Ill. Adm.
Code 130.1940 and 130.2075.
In regards to your question concerning freight, as a technical proposition, handling charges represent
a retailer’s cost of doing business, and are consequently always included in gross charges subject to
tax in retail sale situations. See, 86 Ill. Adm. Code 130.410. However, such charges are often stated
in combination with shipping charges. In this case, charges designated as “shipping and handling,”
as well as delivery or transportation charges in general, are not taxable if it can be shown that they
are both separately agreed to apart from the selling price of the tangible personal property sold, and
that such charges are actually reflective of the costs of shipping. To the extent that shipping and
handling charges exceed the costs of shipping, the charges are subject to tax.
The best evidence that shipping and handling or delivery charges have been contracted for
separately by purchasers and retailers are separate contracts for shipping and handling or delivery.
However, documentation that demonstrates that purchasers had the option of taking delivery of the
property, at the sellers’ location for the agreed purchase price, plus an ascertained or ascertainable
delivery charge, will suffice. If retailers charge customers shipping and handling or delivery charges
that exceed the retailers’ cost of providing the transportation or delivery, the excess amount is subject
to tax.

ST 13-0022-GIL
April 30, 2013
Page 3
If subcontractors are utilized and are acting as construction contractors, the transaction between the
general contractors and the subcontractors is not a taxable transaction. The subcontractors incur
Use Tax liability on any tangible personal property that they purchase for incorporation into real
estate. If, however, general contractors make purchases and then contract to have subcontractors do
the installation, the general contractors incur Use Tax liability because they are making the purchases
of such tangible personal property.
Signs that are attached to poles that are set in concrete or that are inserted into a cutout in the
building and are attached to electrical wiring are considered to be permanently attached to the real
property. The discussion on construction contractors above would apply to these situations.
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