When are separately stated furniture delivery or merchandise shipping charges excluded from Illinois sales tax?

Plain-English summary

A furniture retailer asked about an “Additional Handling” charge for truck delivery and a “Shipping” charge for UPS delivery.

Under 86 Ill. Adm. Code 130.415(d), transportation or delivery was not part of the taxable selling price when two conditions were met:

1. The buyer and seller agreed to the charge separately from the property's selling price.
2. The charge reflected the actual cost of transportation or delivery.

A separate invoice line was not enough by itself. The best evidence was a distinct delivery contract. Other sufficient documentation could show that the purchaser had the option to pick up the property for the agreed sale price or choose seller delivery for an ascertained or ascertainable extra charge.

If the delivery charge exceeded actual transportation cost, the excess was taxable.

What this means for you

Retailers

Offer and document a genuine pickup option or separate delivery agreement. Do not rely solely on the invoice label.

Accountants and tax professionals

Compare the charge with actual delivery cost. Even a separately agreed charge has a taxable excess if it includes a markup beyond transportation cost.

Common questions

Is a separately stated shipping line automatically nontaxable? No.

What supports a separate agreement? A separate contract or records showing the buyer could choose pickup at the sale price or delivery for a known extra charge.

Is a delivery markup exempt? No. The excess over actual delivery cost is taxable.

Citations and references

• 86 Ill. Adm. Code 130.415(d)
• 35 ILCS 120/2; 86 Ill. Adm. Code 130.101
• 35 ILCS 105/3; 86 Ill. Adm. Code 150.101

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2014.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2014/st-14-0004.pdf

Original ruling text

ST-14-0004-GIL 03/04/2014 DELIVERY CHARGES
Charges designated as delivery or transportation charges are not taxable if it can be shown that they are both
agreed to separately from the selling price of the tangible personal property which is sold and that such charges
are actually reflective of the costs of shipping. See 86 Ill. Adm. Code 130.415. (This is a GIL.)

March 4, 2014

Dear Xxxxx:
This letter is in response to your letter dated October 30, 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.
In your letter you have stated and made inquiry as follows:
I would like to know if the Retailers’ Occupation Tax (sales tax) applies in each of the
following two scenarios:
1) A retail customer buys furniture from a retail furniture store. The store delivers the
furniture to the customer’s home. On the store’s billing invoice, a separately stated
delivery fee labeled “Additional Handling” is included. This “Additional Handling” fee
is for the furniture delivered to the customer’s home via delivery trucks from an
outside-company. The Handling fee is a predetermined, agreed upon amount
between the customer and the store. Should the furniture store apply the Retailers’
Occupation Tax to the “Additional Handling” fee?
2) A retail customer buys merchandise (non-furniture) from the same retail furniture
store. The store delivers the merchandise to the customer’s home. On the store’s
billing invoice, a separately stated delivery fee labeled as “Shipping” is included.
This “Shipping” charge is for the merchandise delivered to the customer’s home via
UPS. The Shipping fee is a predetermined, agreed upon amount between the
customer and the store. Should the furniture store apply the Retailers’ Occupation
Tax to the “Shipping” charge?
Thank you for clarifying.
If you should have any questions, you may contact me at.

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. 35 ILCS
120/2; 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. 35
ILCS 105/3; 86 Ill. Adm. Code 150.101.
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. Some of the transactions you describe
appear to be service transactions.
If a seller delivers the tangible personal property to the buyer, and the seller and the buyer
agree upon the transportation or delivery charges separately from the selling price of the tangible
personal property which is sold, then the cost of the transportation or delivery service is not a part of
the "selling price" of the tangible personal property personal property which is sold, but instead is a
service charge, separately contracted for, and need not be included in the figure upon which the
seller computes his or her tax liability. See the Department’s regulation at 86 Ill. Adm. Code
130.415(d).
A separate listing on an invoice of such charges is not sufficient to demonstrate a separate
agreement. The best evidence that transportation or delivery charges were agreed to separately and
apart from the selling price is a separate and distinct contract for transportation or delivery. However,
documentation which demonstrates that the purchaser had the option of taking delivery of the
property, at the seller's location, for the agreed purchase price, or having delivery made by the seller
for the agreed purchase price, plus an ascertained or ascertainable delivery charge, will suffice. Note,
as stated in Section 130.415 of the Department’s regulations, if the charges for transportation or
delivery exceed the cost of delivery or transportation, the excess amount is subject to tax. For further
information, see Nancy Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009).

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:lkm