Could an Illinois copy shop charge tax on paper copies even though copying was a service?

Plain-English summary

An Illinois consumer paid tax after making 70 paper copies and argued that Illinois did not tax services.

IDOR agreed that Retailers' Occupation and Use Tax did not apply to a pure service, but explained that Service Occupation and Service Use Tax applied to tangible personal property transferred incident to service. Illinois treated sales of copies as service transactions governed by those rules.

A serviceman could calculate liability using the separately stated selling price of the transferred property or 50% of the total bill, with a floor equal to the serviceman's cost. A registered de minimis serviceman could pay Service Occupation Tax on cost; an otherwise unregistered de minimis serviceman could pay Use Tax on cost as the end user.

The final method did not permit the serviceman to collect a customer "tax," and the customer incurred no Service Tax. Under methods producing Service Occupation Tax, the customer incurred the corresponding Service Use Tax.

De minimis status was based on annual figures, not transaction by transaction. The ordinary threshold described was property cost below 35% of annual service receipts, or 75% for pharmacists and graphic-arts producers.

What this means for you

Calling copying a service did not eliminate tax because the transaction delivered paper copies. The store's registration, annual property ratio, and chosen accounting method determined how the liability was handled.

Common questions

Were copies treated as a service? Yes.

Could paper transferred with the service create tax? Yes.

Was every shop allowed to collect tax from the customer? No; an unregistered de minimis serviceman using the Use Tax-on-cost method could not.

Citations and references

• 86 Ill. Adm. Code 140.101, 140.106, 140.108, and 140.109.
• 86 Ill. Adm. Code 160.101.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2015/st-15-0021.pdf

Original ruling text

ST 15-0021 GIL 03/18/2015 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.)

March 18, 2015

Dear XXXX:
This letter is in response to your consumer fraud complaint dated December 18,
2014, that the Illinois Attorney General’s Consumer Fraud Unit forwarded to the Illinois
Department of Revenue for a response. 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 complaint, you referenced an attached letter in which you
stated as follows:
That on DATE, you made 70 copies at a COMPANY store located at
ADDRESS, CITY, STATE, and you were charged $0.56 for Illinois sales
tax. You believe that COMPANY should not be charging tax because
Illinois does not collect sales tax for services.
You sent a copy of the referenced letter to the Illinois Attorney General,
asking for a determination as to whether “copying is subjected to state
sales tax.”
DEPARTMENT’S RESPONSE:
It is true that Retailers' Occupation and Use Taxes do not apply to sales of
service. However, the Service Occupation Tax Act and Service Use Tax are imposed on

the transfer of tangible personal property incident to sales of service. See 86 Ill. Adm.
Code 140.101 and 160.101.
A 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 he is a registered de minimis serviceman; or, 4. Use Tax on the serviceman’s cost
price if he is a de minimis serviceman 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 price 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
serviceman’s cost price of the tangible personal property transferred. See 86 Ill. Adm.
Code 140.106. These methods result in the customer incurring a Service Use Tax
liability. See 86 Ill. Adm. Code 160.101.
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 incident to 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 do not 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. This
method also results in the customer incurring a Service Use Tax liability.
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. 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. Under this method the
customer incurs no Service Tax liability.

Servicemen that incur Service Occupation Tax collect the Service Use Tax from
their customers. In Illinois, sales of copies have been determined to be sales of service
subject to taxation under the principles discussed above. If customers are charged for
copying by a business that incurs Service Occupation Tax, the customers incur a
corresponding Service Use Tax liability, as outlined above.
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:kd
Cc: NAME