Were a materials seller's flat delivery charge, added fuel fee, and dumpster fee included in Illinois taxable gross receipts?

Plain-English summary

A materials seller charged a flat delivery fee for company-vehicle deliveries within a set radius. Customers could instead pick up the materials and avoid the charge. For longer trips, the seller added a fuel fee to recover driver time, fuel, and vehicle wear. It also charged a flat dumpster fee for delivery, customer use, pickup, and trash disposal.

IDOR said the separately identified delivery fee was excluded from taxable gross receipts when the customer had a pickup option. The seller had to retain documentation proving that pickup was available.

The added fuel fee was taxable even when separately stated because it was a nondeductible cost of doing business. IDOR could not determine the dumpster fee's treatment from the limited facts.

What this means for you

Separately stating delivery is not enough by itself. A genuine pickup alternative and records showing that option are central. Fuel surcharges that recover the seller's operating costs remain taxable under this GIL.

Common questions

Was the optional flat delivery charge taxable? No, when separately identified, pickup was available, and the seller kept proof.

Was the extra fuel fee taxable? Yes.

Was the dumpster fee taxable? IDOR did not decide.

Citations and references

• 86 Ill. Adm. Code 130.415.
• 86 Ill. Adm. Code 130.401 and 130.410.
• Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009).

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-15-0068-gil.pdf

Original ruling text

ST 15-0068- GIL 10/26/2015 DELIVERY CHARGES

This letter discusses transportation and delivery charges in light of the decision in Kean v.
Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009). (This is a GIL.)

October 26, 2015

Dear XXxXxx:

This letter is in response to your letter dated May 28, 2015, 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:

ABC, respectfully requests a letter ruling on the tax treatment of shipping and
handling items under 86 II]. Adm. 130.415. ABC has also reviewed ST-03-0087-
GIL and could not come to a clear determination if items #1 and #2 under the
facts below are taxable.

Item #3 below is not related to shipping but was previously considered taxable in
an audit. ABC believes the charge should not be taxable based on 86 III. Adm.
130.120(d).

FACTS

1. ABC ships materials to customers in company vehicles for a flat fee in a
   predetermined geographical radius. ABC lists the fee as a delivery charge on
   the invoice.

e The delivery charge is separately stated on the invoice.

e The delivery charge is optional because the customer can pick up the
materials at the branch location and waive the delivery charge.

e There is not a separate and distinct contract for the delivery charge.

e The actual cost of delivery cannot be determined as every delivery is
unique, therefore, ABC cannot determine if the delivery charge
exceeds the actual cost of shipping.

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2. ABC may charge an additional delivery fee called a fuel charge for deliveries
   outside the normal delivery radius. This fee is to recoup extra driver time,
   gas, and attrition of vehicle.

3. ABC charges a flat fee listed as dumpster fee for the service and use of
   company dumpsters.
   e ABC delivers a dumpster to a job site, allows customers to dispose of
   trash in the dumpster, then ABC picks up the dumpster of [sic]
   disposes of the trash.

To the best of our knowledge, IL DOR has not previously ruled on the same or a
similar issue for ABC, nor have any representatives of ABC previously submitted
the same or similar issue to the IL DOR or withdrew a request before a letter
ruling was issued. ABC is not currently under audit nor has any pending
litigation with the IL DOR. ABC does not identify any authorities contrary to
ABC views. A properly executed power of attorney is included with this letter
ruling request.

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 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. See 35 ILCS 105/3; 86 Ill. Adm. Code 150.101. These taxes comprise what is
commonly known as "sales" tax in Illinois. If the purchases occur in Illinois, the purchasers
must pay the Use Tax to the retailer at the time of purchase. The retailers are then allowed to
retain the amount of Use Tax paid to reimburse themselves for their Retailers’ Occupation Tax
liability incurred on those sales. If the purchases occur outside Illinois and the seller is not
registered to collect Illinois Use Tax, purchasers must self assess their Use Tax liability and
remit it directly to the Department.

The Department’s regulation regarding transportation and delivery charges, 86 Ill. Adm.
Code 130.415, is under review in light of the decision in Kean v. Wal-Mart Stores, Inc., 235 III.
2d 351, 919 N.E.2d 926 (2009). At issue in Kean was whether shipping charges for certain
Internet purchases of tangible personal property were subject to Illinois sales tax. The court
found that an “inseparable link” existed between the sale and delivery of the merchandise
plaintiffs purchased from Wal-Mart’s Internet store. Thus, the court in Kean concluded that the
outgoing transportation and delivery charges were part of the gross receipts subject to the
Retailers’ Occupation Tax.

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An inseparable link exists when (a) the transportation and delivery charges are not
separately identified to the purchaser on the contract or invoice or (b) the transportation and
delivery charges are separately identified to the purchaser on the contract or invoice, but the
seller does not offer the purchaser the option to receive the property in any manner except by
delivery from the seller (i.e., no pick-up option). In contrast, if the tangible personal property
that the customer agreed to buy can be sold to the customer without the retailer rendering the
delivery service, then an inseparable link does not exist and the delivery charges should not be
included in the selling price of the sale of tangible personal property. Kean, 235 Ill. 2d at 375.

Thus, when charges for outgoing transportation and delivery are separately identified and
the purchaser has the option to pick up the tangible personal property, outgoing transportation
and delivery is considered a service separate and distinct from the sale of tangible personal
property that is being transported or delivered and charges for such services should be excluded
from the gross receipts subject to the Retailers’ Occupation Tax or Use Tax in the case of out-of-
state retailers who sell directly to Illinois residents. When a seller offers the purchaser the option
to pick up the property at the seller’s location, the seller must maintain documentation which
demonstrates that the purchaser had that option.

Regarding the additional fuel charges that you mention in your letter, such charges are
considered costs of doing business and are not deductible from gross receipts. “Gross Receipts”
means all the consideration actually received by the seller, except traded-in tangible personal
property. See 86 Ill. Adm. Code 130.401. Therefore, fuel charges are subject to Retailers’
Occupation Tax even if separately stated on an invoice. See 86 II]. Adm. Code 130.410.

Your letter also mentions that you provide the use of dumpsters to your customers, and
you charge a flat fee listed as a “dumpster fee.” Based on the limited information provided in
your letter, we cannot determine the exact nature of these transactions.

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,

Cara Bishop
Associate Counsel

CB:mdb

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