How did Illinois tax data-center cabling installation, termination, testing, labeling, and inventory services?

Plain-English summary

A firm described installing and terminating data-center cable, cable-management devices and patch cords, plus testing, labeling, documentation, auditing, and inventory work.

IDOR did not classify those tasks. It supplied four general methods for property transferred with a service: tax on a separately stated property price; tax on 50% of the bill; Service Occupation Tax on cost for a registered de minimis serviceman; or Use Tax on cost for an unregistered de minimis serviceman. A service with no property transfer remained outside those taxes. Subcontracting may create a multi-service transaction.

Common questions

Did IDOR decide whether the cabling work was taxable? No.

What controlled? Property transfers, pricing, de minimis status, and subcontracting.

Citations and references

• 86 Ill. Adm. Code 140.101 through 140.109
• 86 Ill. Adm. Code 140.301(a)

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-13-0035.pdf

Original ruling text

ST 13-0035-GIL 07/31/2013 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.)
July 31, 2013
Dear:
This letter is in response to your letter dated May 28, 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:
We have a client that is considering doing business in the state of Illinois. They have
requested that our firm get legal opinion letters as to the applicability of sales and use
tax to the transactions they would perform in Illinois.
Attached please find a detailed description of those transactions.
If you have any questions or need any additional information, please do not hesitate to
contact me.
Your attachment reads as follows:
Description of IT Work Performed within: Illinois, STATE1, STATE2 and
STATE3
Work Environment
Enclosed data center facilities.
Work Tasks
•

Installation of fiber optic and copper cable between data center equipment
cabinets and or equipment racks. Cables will be installed below raised
floor systems and in cable tray and ladder rack cable pathway systems
placed above equipment cabinets and equipment racks.

ST 13-0035-GIL
July 31, 2013
Page 2
•
•
•
•
•
•

Termination of installed cabling on rack and cabinet mounted cable
termination devices such as patch panels and fiber optic termination
enclosures.
Installation of equipment cabinet and or equipment rack mounted vertical
and horizontal cable management devices.
Installation of copper and fiber optic patch cords between rack and or
cabinet mounted electronics and rack or cabinet mounted cable
termination devices.
Performance testing of installed fiber optic and copper cabling.
Labeling and documentation of installed cabling and associated
components
Auditing, counting and inventorying of IT infrastructure components within
data center environments.

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. 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.
Illinois Retailers' 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 of 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.

ST 13-0035-GIL
July 31, 2013
Page 3
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.
When a primary serviceman subcontracts work to a secondary serviceman, a multi-service situation
may exist. See 86 Ill. Adm. Code 140.301(a).
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