Were meals sold directly to county-jail inmates by a charitable educational organization exempt from Illinois sales tax?

Plain-English summary

A charitable or educational organization taught cooking skills at a county correctional facility and wanted to sell the resulting meals directly to inmates. Its accountants believed the organization's exempt purpose made those sales tax-free.

IDOR distinguished the identity of the seller. Illinois provides a limited exception for certain charitable, religious, or educational organizations selling qualifying property to their own members, students, patients, or inmates for the organization's purposes. IDOR said a meal sale by the prison to its inmates would be exempt.

But the planned seller was the outside organization, not the prison. IDOR therefore said the meals would be subject to Retailers' Occupation Tax.

What this means for you

An organization's charitable or educational role does not automatically exempt every retail sale. The statutory relationship among the seller, purchaser, and exempt institution controlled the answer here.

Common questions

Would the same meals be exempt if the prison sold them? Yes, according to the GIL.

Why were the organization's sales taxable? The organization itself, rather than the prison, would sell directly to inmates.

Citations and references

• 35 ILCS 120/1 and 120/2; 35 ILCS 105/3.
• 86 Ill. Adm. Code 130.101 and 150.101.
• 2 Ill. Adm. Code 1200.120.

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2017/st-17-0004-gil.pdf

Original ruling text

ST 17-0004-GIL 02/06/2017 EXEMPT ORGANIZATIONS
A person whose activities are organized and conducted primarily as a not-for-profit service
enterprise, and who engages in selling tangible personal property at retail (whether to the
public or merely to members and their guests) is engaged in the business of selling tangible
personal property at retail with respect to such transactions, excepting only a person organized
and operated exclusively for charitable, religious or educational purposes either (1), to the
extent of sales by such person to its members, students, patients or inmates of tangible
personal property to be used primarily for the purposes of such person, or (2), to the extent of
sales by such person of tangible personal property which is not sold or offered for sale by
persons organized for profit. 35 ILCS 120/1.

February 6, 2017

RE:

EXEMPT ORGANIZATION

Dear Xxxxx:
This letter is in response to your letter dated January 6, 2017, 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:
We are the accountants for the above described exempt organization and would like to
request a private ruling or simply verify the following. Our client provides education to
inmates by teaching them cooking skills at the COUNTY Correctional Facility. They
would like to sell the meals directly to the inmates themselves if they would like to
purchase them. It is my understanding they would not need to charge them sales tax
because they are a charitable/educational organization selling tangible personal
property to inmates to be used originally for the purpose of such person.
Based on the above facts I would like to verify that this to be true. Your response would
be greatly appreciated.
DEPARTMENT’S RESPONSE:

ST 17-0004-GIL
Page 2

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, purchasers must self-assess their Use Tax liability and remit it
directly to the Department.
A person whose activities are organized and conducted primarily as a not-for-profit service
enterprise, and who engages in selling tangible personal property at retail (whether to the public or
merely to members and their guests) is engaged in the business of selling tangible personal property
at retail with respect to such transactions, excepting only a person organized and operated
exclusively for charitable, religious or educational purposes either (1), to the extent of sales by such
person to its members, students, patients or inmates of tangible personal property to be used
primarily for the purposes of such person, or (2), to the extent of sales by such person of tangible
personal property which is not sold or offered for sale by persons organized for profit. 35 ILCS 120/1.
This means that if the prison were to sell such meals to its inmates, the sale would be tax
exempt. However, your letter states that your client, rather than the prison would engage in selling
the meals to inmates. In this instance, the meals would be subject to 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