Were separately stated freight charges on wine shipped directly to Illinois consumers excluded from sales tax when free winery pickup was available?

Plain-English summary

A winery asked IDOR to confirm that freight charged at actual cost on direct shipments to Illinois consumers was not taxable. Its website also offered customer pickup at the winery for no charge.

IDOR would not give the requested transaction-specific statement but explained the inseparable-link test. Delivery charges are part of taxable gross receipts when they are not separately stated or when the customer cannot obtain the product without paying delivery.

If a seller offers free delivery for which the buyer qualifies or a real pickup option, and the buyer voluntarily chooses separately stated shipping, that charge is nontaxable so long as the product price does not change based on delivery method. If the product price changes with the method, delivery charges are taxable to the extent they exceed actual outgoing transportation cost.

What this means for you

Separately stating freight and charging actual cost do not alone settle the issue. The customer must have a genuine way to buy without the charge, and the merchandise price must remain consistent.

Common questions

Is separately stated delivery always nontaxable? No.

Does a free pickup option matter? Yes. It can break the inseparable link if it is genuinely available and the product price stays unchanged.

Citations and references

• 86 Ill. Adm. Code 130.415.
• 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-16-0065-gil.pdf

Original ruling text

ST 16-0065-GIL 12/15/2016

DELIVERY CHARGES

This letter discusses transportation and delivery charges. 86 Ill. Adm. Code 130.415.
(This is a GIL.)
December 15, 2016

Dear Xxxxx:
This letter is in response to your letter dated July 2, 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 were advised to contact your department in order to verify that wine
shipments directly from the winery to consumers in Illinois do NOT need to be
billed for the sales tax on the freight charges if the amount charged to the
customer is equivalent to the freight charge incurred by the winery.
Please forward a statement from your office to that effect.
Thank you in advance for your help in this matter. Please note that we do
have a statement on our website stating that the wine purchaser has the option
to either pick up the wine at the winery at no charge or have it shipped at
standard freight charges.
DEPARTMENT’S RESPONSE:
We are unable to provide the statement you request based on the limited information
provided. However, we hope the following information is helpful.
The Department’s regulation regarding transportation and delivery charges, 86 Ill. Adm.
Code 130.415, was recently amended in light of the decision in 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

ST 16-0065-GIL
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. 86 Ill. Adm. Code 130.415(b)(1)(B)(i). 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 the payment of
transportation and delivery charges added to the selling price of an 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). 86 Ill.
Adm. Code 130.415(b)(1)(B)(ii). In contrast, if the tangible personal property that the customer
agreed to buy can be sold to the customer without adding a transportation or delivery charge to
the selling price of the item, then an inseparable link does not exist and the delivery charges
should not be included in the selling price of the tangible personal property. 86 Ill. Adm. Code
130.415(b)(1)(B)(ii)-(iii).
If a seller of tangible personal property offers the purchaser free transportation and
delivery of the property, qualified transportation and delivery of the property for which the
purchaser qualifies (e.g., purchases over $25 qualify for free shipping, and the purchaser
spends more than $25), 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. If the selling price of the tangible personal property
increases or decreases depending on the method chosen by the purchaser to obtain the
merchandise, any transportation and delivery charges imposed will be subject to Retailers'
Occupation Tax to the extent those charges exceed the actual cost of outgoing transportation
and delivery. 86 Ill. Adm. Code 130.415(b)(1)(C).
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:bkl

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