How did Illinois tax a custom-sign seller that separately billed freight and installation for signs attached to buildings or concrete-set poles?

Plain-English summary

A registered custom-sign seller shipped signs into Illinois and hired independent contractors to install them on buildings or poles set in concrete. Freight and installation were separately stated and marked up. The company asked whether it should collect sales tax or pay Use Tax, how freight and installation were treated, and how local tax applied.

IDOR gave general guidance rather than a single classification for every transaction. Sign vendors could incur Retailers' Occupation Tax, Service Occupation Tax, or Use Tax depending on the sale. The letter's official summary stated that a person acting as a construction contractor by permanently affixing tangible personal property to real estate owed Illinois Use Tax on the property's cost price.

IDOR directed sign vendors to the regulations for sign sales, installation charges, services, and construction contractors. It separately directed the company to the business-cost and transportation regulations for freight and delivery, while warning that those delivery regulations were being amended at the time of the 2015 letter.

The Department also said the state Retailers' Occupation Tax and Use Tax rate was generally 6.25%, while local rates varied by jurisdiction and could be found through its tax-rate tools.

What this means for you

The physical installation of a sign can change the seller's role from retailer or serviceman to construction contractor. Do not decide the tax from invoice labels alone. Determine whether the sign becomes real estate, then apply the rule for the resulting transaction type. This GIL did not resolve every freight, markup, or exemption question on the requester's facts.

Common questions

Did IDOR say all installed signs receive the same treatment? No.

What tax applied when the seller acted as a construction contractor? Use Tax on the cost price of property permanently affixed to real estate.

Did separately stating freight settle its tax treatment? No. IDOR referred the company to the delivery-charge regulations and noted that amendments were underway.

Citations and references

• 86 Ill. Adm. Code 130.2155 and 130.450.
• 86 Ill. Adm. Code 140.101.
• 86 Ill. Adm. Code 130.1940 and 130.2075.
• 86 Ill. Adm. Code 130.410 and 130.415.

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-15-0103-gil.pdf

Original ruling text

ST 15-0103 (GIL) October 15, 2015 CONSTRUCTION CONTRACTORS

Persons who act as construction contractors by permanently affixing tangible personal property
to real estate owe Illinois Use Tax on the cost price of that tangible personal property. See 86 III.
Adm. Code 1940 and 2075. (This is a GIL.)

October 15, 2015

Dear XXxXxx:

This letter is in response to your letter dated August 26, 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:

We are doing our annual update of our tax files to be sure that we are aware of
any new Sales/use tax issues in your state that would affect our company. Our
company, COMPANY sells custom made signage into your state where we are
currently registered. The signage is either attached to a building or a pole that is
concreted into the ground. We contract with an independent contractor to install
the signs. The installation charges are separately stated on the billing and include
charges for surveys, permits, engineering and repairs. We also contract with an
independent freight carrier to deliver the sign to the site for installation. All
freight charges are separately stated on the billing. Both the installation and the
freight are charged to the customer at a rate higher than our companies [sic] cost.

Our questions based on the above circumstances are as follows.

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e At the point of sale should we as the seller be charging the customer sales
tax or is this a case where we would pay use tax?

e If this is a case of use tax, how is the use tax calculated?

e Should tax be charged on the freight?

e Should tax be charged on all components of the installation?

e If tax is charged on the freight and installation, do we charge on the selling
price or only on the element of profit?

e Are we obligated to collect local taxes in your state?

e If we are obligated to collect the local tax should those taxes be remitted to
the state or the locality?

e Do you have any special rules or exemptions that apply to your state
relating to our situation?

e Are there any special circumstances for new construction or remodeling
that would cause our customers to be exempt in this situation?

e Please provide any applicable code sections that would apply to signage,
installation and freight for our future reference.

e Does your state have a mass mailing list to provide us with updates when
they become available? If so, will you please add us to your list or
provide us with information to register for this.

We look forward to your response to our inquiries on or before October 15, 2015.
Please direct your response to the address above. Thank you for your time.

DEPARTMENT?’S RESPONSE:

Generally, the Retailers’ Occupation Tax rate and Use Tax rate imposed by the State of
Illinois is 6.25%. See 86 Ill. Adm. Code 130.310. Unlike the State tax rate noted above, local
tax rates vary depending on the tax rate imposed by the local government in a particular
jurisdiction. For local tax rates, see the Department’s Tax Rate Database and the Tax Rate
Finder on the Department’s website at www.tax.illinois.gov. Once on the website, you will see
on the left hand side a box entitled “Quick Links”. At the bottom of that box is a link entitled
“Tax Rate Database”. Click on that link which will take you to a screen entitled “Tax Rate
Database”. In the middle of the screen click on the link entitled “Sales Tax”. Toward the bottom
of the middle of that screen you will see a link entitled “Tax Rate Finder”. Click on that link
which will take you to another screen. At the bottom of that screen click the “Start” button on
the bottom right of the screen. At the bottom of the next screen, click on the “Continue” button.
On the next screen, click on the “Accept” button, which takes you to the “Search” screen. This
screen permits you to find the particular area you are interested in searching to find out the tax
rates in that area for specific months.

Persons who sell signs may incur a Retailers’ Occupation Tax, Service Occupation Tax
or Use Tax liability, depending upon the circumstances of the particular sale. See 86 Ill. Adm.
Code 130.2155 (Tax Liability of Sign Vendors); 86 II]. Adm. Code 130.450 (Installation,
Alteration and Special Service Charges); 86 Ill. Adm. Code 140.101 (Basis and Rate of the

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Service Occupation Tax); 86 Ill. Adm. Code 130.1940 (Construction Contractors and Real Estate
Developers) and 86 Ill. Adm. Code 130.2075 (Sales To Construction Contractors, Real Estate
Developers and Speculative Builders).

For information on handling and delivery charges, see 86 Ill. Adm. Code 130.410 (Cost
of doing Business Not Deductible) and 86 Ill. Adm. Code 130.415 (Transportation and Delivery
Charges). Please be advised, however, the Department is currently in the process of amending
these regulations. You can go to our website to follow these regulations as they proceed through
the rulemaking process.

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:mdb

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