Did the destination of goods shipped from an Illinois hub determine whether freight charges were taxable?

Plain-English summary

A seller asked whether freight differed for shipments from its Illinois hub to Illinois versus other states. IDOR said destination alone did not determine whether delivery charges were taxable.

Freight entered taxable gross receipts when delivery was inseparably linked to the sale -- for example, when charges were not separately stated or the customer had no pickup or qualifying free-delivery alternative. Separately stated optional delivery could be nontaxable when the product price did not change. If price changed, charges above actual outgoing transportation cost were taxable.

Out-of-state shipment raised a separate interstate-commerce issue. When the agreement required the Illinois seller to deliver property to an out-of-state point, the property was not returned to Illinois, and delivery actually occurred, the sale was exempt from Illinois and local Retailers' Occupation Tax.

What this means for you

Analyze delivery-charge inclusion separately from whether the underlying sale is interstate commerce. Contract terms, buyer options, price consistency, and proof of actual out-of-state delivery all matter.

Common questions

Are all out-of-state freight charges nontaxable? No.

What creates an exempt interstate sale? A seller obligation to deliver out of state and actual qualifying delivery.

Citations and references

• 86 Ill. Adm. Code 130.415 and 130.605(d).
• Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009).

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2016.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2016/st-16-0063-gil.pdf

Original ruling text

ST 16-0063-GIL 11/14/2016

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). See 86 Ill. Adm. Code
130.415. (This is a GIL.)

November 14, 2016

Dear Xxxxx:
This letter is in response to your letter dated August 30, 2016, in which you requested
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:
I am requesting a binding ruling on the following questions;
If we ship items from our hub in Illinois to a destination in Illinois is the freight
taxable?
If we ship items from our hub in Illinois to a destination in the United States
outside of Illinois is the freight taxable.
Please send your ruling to our corporate office at:
COMPANY NAME
ADDRESS
You may reply via email:
[email protected]
or fax:

ST 16-0063-GIL
DEPARTMENT’S RESPONSE:
The Department’s regulation regarding transportation and delivery charges, 86 Ill. Adm.
Code 130.415, was recently amended to incorporate the provisions of Kean v. Wal-Mart
Stores, Inc., 235 Ill. 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.
The taxability of transportation and delivery charges is not based on the destination of
the property that is being shipped. As Kean notes, outgoing transportation and delivery
charges are part of the gross receipts subject to Retailers’ Occupation Tax when there is an
inseparable link between the sale of tangible personal property and the outgoing transportation
and delivery of the property. The regulation clarifies that an inseparable link exists when the
transportation and delivery charges are (1) not separately identified to the purchaser on the
contract or invoice or (2) when 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 tangible personal property in any manner except by the payment of
transportation and delivery charges added to the selling price of the item (e.g., the seller does
not offer the purchaser the option to pick up the tangible personal property or the seller does
not offer, or the purchaser does not qualify for, a free transportation and delivery option). See
86 Ill. Adm. Code 130.415(b)(1)(B)(ii).
Except for cases in which an inseparable link exists, outgoing transportation and
delivery is otherwise considered a service separate and distinct from the sale of tangible
personal property and is excluded from the gross receipts subject to the Retailers’ Occupation
Tax.
The amended regulation provides that retailers who have computed their tax liability for
transportation and delivery charges according to the provisions of either the old rule or the
amended rule for periods between the Kean decision (November 19, 2009) and April 1, 2016
(the effective date of the new rules) shall be considered to have properly collected and
remitted tax on those charges. See the Department’s regulation at 86 Ill. Adm. Code
130.415(b)(1)(A)(i). The regulation further provides that if a seller of tangible personal property
offers the purchaser free transportation and delivery of the property or free transportation and
delivery of property for which the purchaser qualifies (e.g., purchases of $50 or more receive
free delivery), or the option to pick up the property, any separately identified transportation and
delivery charges chosen by the purchaser (e.g., amounts paid for expedited transportation and
delivery) will be nontaxable, as long as the selling price of the tangible personal property
neither increases nor decreases depending on the method chosen by the purchaser to obtain
the merchandise. When the selling price of the tangible personal property increases or
decreases, the transportation and delivery charges will be subject to Retailers’ Occupation Tax
to the extent those charges exceed the actual cost of the outgoing transportation and delivery.
Based on the limited information contained in your letter, we cannot determine whether
you are making sales in interstate commerce. Sales of property originating in Illinois are
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ST 16-0063-GIL
specifically addressed at 86 Ill. Adm. Code 130.605. Subpart (d) of this regulation states that the
gross receipts from such sales are not subject to tax when a sale is conducted in which the seller is
obligated, under the terms of an agreement with the purchaser, to make delivery of the property
from a point in this State to a point outside this State, not to be returned to this State, provided that
such delivery is actually made. See 86 Ill. Adm. Code 130.605(d). Such sales are considered to be
sales in interstate commerce and are exempt from Illinois and local Retailers' Occupation Tax.

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
Senior Counsel

CB:bkl

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