What does Illinois General Information Letter ST 18-0018-GIL conclude about Service Occupation Tax?

Plain-English summary

A company that sells and services office machines (like copiers and printers) in Illinois asked the Department for a Private Letter Ruling on how to source its Retailers' Occupation Tax and Use Tax collections. The company's sales reps travel to customer sites to sell equipment, its service technicians travel to customer sites to perform repairs and deliver parts, and its corporate headquarters also makes direct and drop-shipped sales. The company said it believed its own facts pointed to sourcing tax to the many different local jurisdictions where its reps and technicians worked, but it flagged that the same regulation arguably supported sourcing everything to its home office instead — so it wanted the Department's binding answer.

The Department declined to issue a PLR. Under 2 Ill. Adm. Code 1200.110(a)(4), the Department has discretion whether to rule at all, and it determined the letter's facts were too limited to support a binding ruling. Instead, the Department issued this GIL, which — consistent with 2 Ill. Adm. Code 1200.120 — only directs the taxpayer to the relevant regulations and general principles rather than resolving the taxpayer's specific sourcing question.

Substantively, the GIL walks through several general rules: (1) sales made from a vehicle carrying a stock of goods (a "portable place of business") are sourced to wherever the sale and delivery actually occur, per 86 Ill. Adm. Code 270.115(c)(3)(C); (2) service technicians who transfer parts while performing repairs are generally subject to Service Occupation Tax under 86 Ill. Adm. Code Part 140, with the tax base depending on which of four methods the serviceman uses (separately stated price, 50% of the bill, or one of two de minimis cost-price methods); (3) maintenance agreements are taxed differently depending on whether the charge is bundled into the equipment's selling price (taxable as part of the sale, with no further tax on service) or sold separately (taxed as Use Tax on the serviceman's cost of parts transferred, per 86 Ill. Adm. Code 140.301(b)(3)); and (4) sales completed at the corporate headquarters — walk-in sales and drop shipments — are generally sourced to the headquarters location, with drop-shipment resale transactions requiring a valid Certificate of Resale under 86 Ill. Adm. Code 130.1405.

The Department did note, based on the "limited facts" provided, that local service occupation taxes for the service technicians "would appear" to be calculated using the rate in the technicians' home city, but it stopped short of a binding conclusion and did not resolve which of the five sourcing factors in 86 Ill. Adm. Code 320.115(c) controlled for the sales representatives' transactions.

What this means for you

Businesses with traveling sales or service staff

If your reps sell (not just deliver) tangible personal property from a vehicle carrying stock, Illinois generally sources that Retailers' Occupation Tax/Use Tax sale to the location where the sale and delivery actually happen — the vehicle is treated as a "portable place of business" under 86 Ill. Adm. Code 270.115(c)(3)(C), including any applicable local taxes at that location. That is different from sales completed at a fixed headquarters location, which are sourced to the headquarters.

Servicemen and repair/maintenance businesses

If your technicians transfer parts while performing repairs, you are likely a "serviceman" subject to Service Occupation Tax (not Retailers' Occupation Tax) on the tangible personal property transferred, under 86 Ill. Adm. Code Part 140. How you calculate your tax base (separately stated price, 50% of the bill, or a de minimis cost-price method) depends on your recordkeeping choices and whether your annual cost price of transferred property is under the 35% (or 75% for pharmacists/graphic arts) de minimis threshold in 86 Ill. Adm. Code 140.101(f). Whether a maintenance agreement itself is taxed turns on whether its charge is bundled into the equipment's sale price or billed separately — bundled agreements are taxed as part of the sale with no further tax on service; separately sold agreements make the servicer liable for Use Tax on the cost of parts used, not on the agreement's price.

Accountants and tax professionals advising multi-location service businesses

This GIL is useful background reading on the interplay between 86 Ill. Adm. Code Part 130 (ROT), Part 140 (Service Occupation Tax), Part 150 (Use Tax), and Part 270/320 (sourcing rules), but it is not a ruling your client can rely on — the Department expressly declined the requested PLR here because the facts were "limited." If a client faces the same multi-factor sourcing question (which of the five 86 Ill. Adm. Code 320.115(c) factors control when sales activities are split across employee locations, a home office, and customer sites), expect that a fact-specific PLR request with a fully worked example will be needed to get a binding answer.

Common questions

Q: Did the Department decide where this company should source its sales tax?
A: No. The Department declined to issue the requested Private Letter Ruling, stating the facts provided were too limited, and instead issued this non-binding GIL describing general principles. It did not resolve whether the company's sales-representative and service-technician transactions should be sourced to the many customer locations or to the corporate headquarters.

Q: Are repairs and parts provided under a maintenance contract taxed the same as buying the contract itself?
A: No. If the maintenance agreement's charge is included in the tangible personal property's selling price, that charge is taxed as part of the retail sale, and no further tax applies to the repair service itself. If the agreement is sold separately, the sale of the agreement is not taxed, but the servicer owes Use Tax based on its own cost of the parts it transfers while performing the maintenance.

Q: Is a sale made from a technician's or sales rep's vehicle sourced differently than an office sale?
A: Yes, potentially. A vehicle carrying a stock of goods for sale is treated as a "portable place of business" under 86 Ill. Adm. Code 270.115(c)(3)(C), and sales made and delivered from it are sourced to that location (with applicable local taxes), whereas over-the-counter sales completed at company headquarters are sourced to the headquarters' jurisdiction.

Q: Does this GIL bind the Department or other taxpayers?
A: No. Under 2 Ill. Adm. Code 1200.120, a GIL only directs a taxpayer to relevant regulations and sources of information; it is not a statement of Department policy and is not binding on the Department, even as to the requesting taxpayer.

Citations and references

• 86 Ill. Adm. Code 130.101 — Retailers' Occupation Tax imposition
• 86 Ill. Adm. Code 130.1405 — Certificate of Resale requirements
• 86 Ill. Adm. Code 140.101 — Service Occupation Tax on property transferred incident to service
• 86 Ill. Adm. Code 140.101(f) — de minimis serviceman thresholds (35%/75%)
• 86 Ill. Adm. Code 140.108 — de minimis servicemen paying Use Tax to suppliers
• 86 Ill. Adm. Code 140.301(b)(3) — Use Tax on separately sold maintenance agreements
• 86 Ill. Adm. Code 150.101, 150.130 — Use Tax imposition; credit for Retailers' Occupation Tax paid
• 86 Ill. Adm. Code 270.115 — sourcing rules; portable place of business; headquarters sales
• 86 Ill. Adm. Code 320.115(c) — five primary selling-activity sourcing factors (referenced in taxpayer's request)
• 2 Ill. Adm. Code 1200.110(a)(4) — Department's discretion to decline a Private Letter Ruling
• 2 Ill. Adm. Code 1200.120 — General Information Letters are non-binding
• Rock Island Tobacco and Specialty Co. v. Illinois Dep't of Revenue, 87 Ill. App. 3d 476, 409 N.E.2d 136 (3d Dist. 1980) — retailer's reliance on a valid Certificate of Resale

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2018.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2018/st-18-0018-gil.pdf

Original ruling text

ST 18-0018-GIL 07/13/2018

SERVICE OCCUPATION TAX

The Service Occupation Tax is a tax imposed upon servicemen engaged in the business of
making sales of service in this State, based on the tangible personal property transferred
incident to sales of service. See 86 Ill. Adm. Code Part 140. (This is a GIL.)

July 13, 2018

RE: Retailers Occupation Tax and Use Tax - Jurisdiction
Dear Xxxxx:
This letter is in response to your letter dated December 5, 2017, and your email dated April 16,
2018, 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 requesting a Private Letter Ruling regarding the application of Retailers [sic]
Occupation Tax and Use Tax on our sales for the upcoming tax year 2018. We would
like to have authoritative guidance from the Illinois Department of Revenue as to the
proper sourcing and thus collection of tax on our customers due to the complexities as
described in id. Section 320.115(b)(3). We have included an example of a contract.
We are currently not under audit or litigation with the Illinois Department of Revenue.
We have not previously requested a ruling on this matter nor has any of our
representatives. We have not previously requested a similar ruling and withdrew it prior
to a ruling being issued.

FACTS:
COMPANY sells and services various office machines in Illinois.
Our sales
representatives and service technicians often perform their tasks, sales and service
respectively, at our customers’ locations. We have an office in CITY, Illinois. The office
in CITY houses inventory and provides administrative support.

ST 18-0018-GIL
Page 2
Sales Representatives
Sales Representatives, a majority of the time, go to customer locations to “engage in
the business of selling.” While at these customer locations, which are within various
jurisdictions and thus subject to a variety of rates and parties to whom tax should be
collected on behalf of, the sales representatives enter in a contract for the sale of
goods, establish the terms of payment, and physically exist in that location for the
duration of the sale. The sales representative has the discretion and authority to solicit
customers on behalf of the company at the customer’s location, enter into a binding
agreement, accept payment, and bind the company to the specific performance at that
location, generally, the delivery of equipment.
Service Technicians
Service Technicians utilize the office in CITY to restock their vehicles with supplies,
obtain work orders either in person or on a mobile device, and receive training. Apart
from these activities, service technicians are on the road nearly the entire time
performing work at customer locations. The transfer of property occurs at the
customer’s property (specific performance), additional work is performed while onsite if
noted (binding agreement), and if necessary, the service technicians can make
recommendations for different or new equipment which would be an introduction for a
sales representative.
Corporate Headquarters
The corporate headquarters house inventory and will drop ship supplies to customers.
In addition, the headquarters has a showroom to display and sell equipment to walk-in
customers. The executive offices are located at this location. Administrative functions
such as payroll, ordering bulk supplies, and supporting in-house sales staff is
accomplished at the facility
ANALYSIS:
Title 86 Ill. Adm. Code 320.115(c)(1)-(2) discusses primary selling activities. These
activities are: location of sales personal, location where the seller takes action that binds
it to the sale, location where payment is tendered and received, location of inventory,
and location of the business headquarters. Given the requirement as outlined in
320.115(c)(2) three of these five activities must occur at a location in order to determine
the relevant jurisdiction to which the tax must be remitted to. As outlined previously, we
believe our sales representatives and service technicians consistently accomplish three
of the five activities at customer locations. The in-house sales staff and administrative
support teams accomplish all five tasks for customers who make purchases in our
showroom or via phone in orders.
CONCLUSION:
Given the facts as outline above and our analysis, we believe that we are subject to
Retailers [sic] Occupation Tax and Use Tax in the various jurisdictions in which our
sales representatives and service technicians operate. In addition, we believe we are
subject to the same tax for sales originating out of our CITY, Illinois corporate office that
are completed by our in-house sales staff and administrative department. Therefore,
our sales should be sourced to various jurisdictions.

ST 18-0018-GIL
Page 3
We are considering the Regulations as outlined under Title 86 Ill. Adm. Code 320.115 in
support of our conclusion. We believe that our sales representatives and service
technicians derive the benefit of the local governments in those various districts. Within
this same administrate code, we believe there is authority that is contrary to our view,
namely that all sales would be sourced to the Corporate Office in CITY, Illinois.
Therefore, we are asking for a Private Letter Ruling from the Department in order to
properly determine our obligation to collect and remit Retailers Occupation Tax and Use
Tax for 2018.
DECLARATION:
Under penalties of perjury, I declare that I have examined this request and, to the best
of my knowledge and belief, the request contains all the relevant facts relating to the
request, and such facts are true, correct, and complete.
By email dated April 16, 2018, you provided the following information:
When we sell a new printer/copier as described in my initial letter, the customer usually
purchases a service agreement like the one attached. They pay an additional annual
fee, and we provide maintenance, repairs (including labor and parts), and also supplies
(toner).
DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization,” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.
Code 1200.110(a)(4). The Department recently met and determined that, due to the limited
information provided in your letter, it would decline to issue a Private Letter Ruling in response to your
request. We hope, however, the following General Information Letter will be helpful in addressing
your questions.
SALES TECHNICIANS
You state in your letter that your sales representatives travel to customer locations and make
sales at retail of tangible personal property to customers from a stock of goods on the sales
representatives’ vehicles.
Sales and Occupation Taxes
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 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 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 reduce the amount of Use Tax they must remit by the amount of

ST 18-0018-GIL
Page 4
Retailers' Occupation Tax liability which they are required to and do pay to the Department with
respect to the same sales. See 86 Ill. Adm. Code 150.130.
Sales from Vehicles Carrying Uncommitted Stock of Goods
A seller's place of engaging in business when making sales and deliveries (not just deliveries
pursuant to previously completed sales, but actual sales and deliveries) from a vehicle in which a
stock of goods is being carried for sale is the place at which the sales and deliveries actually are
made. The vehicle carrying the stock of goods for sale is regarded as a portable place of business.
86 Ill. Adm. Code 270.115(c)(3)(C). The sales made from these vehicles would be subject to
Retailers’ Occupation Tax and Use Tax and any local occupation taxes imposed by units of local
government at the location where the sales take place.
SERVICE TECHNICIANS
You state in your letter that service technicians restock their vehicles at the CITY location and
obtain work orders either in person or on a mobile device. They perform work at customer locations
and transfer tangible personal property in the performance of their work. You state that, in some
cases, tangible personal property is transferred pursuant to a maintenance agreement. Other times,
service may be performed and tangible property transferred to customers that do not have
maintenance agreements.
Service Occupation Tax
Retailers' Occupation and Use Taxes do not apply to sales of service. Under the Service
Occupation Tax Act, businesses providing services (i.e., servicemen) are taxed on tangible personal
property transferred as an incident to sales of service. See 86 Ill. Adm. Code 140.101.
The transfer of tangible personal property to service customers may result in either Service
Occupation Tax liability or Use Tax liability for servicemen, depending upon which tax base they
choose to calculate their liability. Servicemen may calculate their tax base in one of four ways: (1)
separately stated selling price; (2) 50% of the entire bill; (3) Service Occupation Tax on cost price if
they are registered de minimis servicemen; or (4) Use Tax on cost price if the servicemen are de
minimis and are not otherwise required to be registered under Section 2a of the Retailers’ Occupation
Tax Act.
Using the first method, servicemen may separately state the selling price of each item
transferred as a result of sales of service. The tax is based on the separately stated selling price of
the tangible personal property transferred. If servicemen do not wish to separately state the selling
price of the tangible personal property transferred, those servicemen must use the second method
where they will use 50% of the entire bill to their service customers as the tax base. Both of the
above methods provide that in no event may the tax base be less than the cost price of the tangible
personal property transferred. Under these methods, servicemen may provide their suppliers with
Certificates of Resale when purchasing the tangible personal property to be transferred as a part of
sales of service. They are required to collect the corresponding Service Use Tax from their
customers.
The third way servicemen may account for their tax liability only applies to de minimis
servicemen who have either chosen to be registered or are required to be registered because they

ST 18-0018-GIL
Page 5
incur Retailers’ Occupation Tax liability with respect to a portion of their business. Servicemen may
qualify as de minimis if they determine that their annual aggregate cost price of tangible personal
property transferred incident to sales of service is less than 35% of their annual gross receipts from
service transactions (75% in the case of pharmacists and persons engaged in graphic arts
production). See 86 Ill. Adm. Code 140.101(f). This class of registered de minimis servicemen is
authorized to pay Service Occupation Tax (which includes local taxes) based upon the cost price of
tangible personal property transferred incident to sales of service. Servicemen that incur Service
Occupation Tax collect the Service Use Tax from their customers. They remit tax to the Department
by filing returns and do not pay tax to their suppliers. They provide suppliers with Certificates of
Resale for the tangible personal property transferred to service customers.
The final method of determining tax liability may be used by de minimis servicemen that are
not otherwise required to be registered under Section 2a of the Retailers' Occupation Tax Act.
Servicemen may qualify as de minimis if they determine that the annual aggregate cost price of
tangible personal property transferred as an incident of sales of service is less than 35% of the
servicemen's annual gross receipts from service transactions (75% in the case of pharmacists and
persons engaged in graphic arts production). Such de minimis servicemen handle their tax liability by
paying Use Tax to their suppliers. If their suppliers are not registered to collect and remit tax, the
servicemen must register, self-assess, and remit Use Tax to the Department. The servicemen are
considered to be the end-users of the tangible personal property transferred incident to service.
Consequently, they are not authorized to collect a "tax" from the service customers. See 86 Ill. Adm.
Code 140.108.
Based on the limited facts you have provided, it would appear that local service occupation
taxes should be calculated using the rate in CITY.
If a company only performs services and does not transfer any tangible personal property, no
tax liability will arise from performing the services.
Maintenance Contracts
The taxability of a maintenance or service agreement depends upon whether the charge for
the agreement is included in the selling price of tangible personal property. If the charge for the
agreement is included in the selling price of tangible personal property, the charge is part of the gross
receipts of the retail transaction and is subject to tax. No tax is incurred on the maintenance services
or parts when the repair or servicing is performed.
If a maintenance agreement is sold separately from tangible personal property, the sale of the
agreement is not a taxable transaction. However, when maintenance services or parts are provided
under the terms of the maintenance agreement, the seller of the maintenance agreement will be
acting as a service provider under provisions of the Service Occupation Tax Act. The Service
Occupation Tax provides that when a service provider enters into an agreement to provide
maintenance services for particular pieces of equipment for a stated period of time at predetermined
fees, the service provider incurs Use Tax based on its cost price of tangible personal property
transferred to the customer incident to the completion of the maintenance service. See 86 Ill. Adm.
Code 140.301(b)(3). Further, the purchaser of the separate agreement is not charged tax on the
labor or tangible personal property that is transferred incident to the completion of the maintenance
agreement. If a deductible is charged to the purchaser under the terms of the separate agreement,
the deductible is also not subject to tax.

ST 18-0018-GIL
Page 6
Retail Sales by Servicemen
The maintenance agreement you provided to us indicates that customers may purchase
additional toner, staples and paper from the company. The agreement also mentions the sale of
accessories by the company to its service customers. If service technicians make retail sales of
tangible personal property that are not transferred as part of sales of service, the sales are subject to
Retailers’ Occupation Tax and Use Tax and local occupation taxes, depending on where the sales
take place. See 86 Ill. Adm. Code 270.115.

CORPORATE HEADQUARTERS
In your letter you state that sales are made at the corporate headquarters in CITY. The
company’s inventory is maintained at this location. The company will drop ship supplies to customers
and make sales of equipment to walk-in customers.
Over the Counter Sales
If a purchaser is present at the company headquarters, enters into an agreement with the
company’s sales personnel to purchase tangible personal property, and makes payment for the
property at the company’s headquarters, then retailers' occupation tax for that sale is determined
based on the jurisdiction in which the headquarters is located, regardless of whether the purchaser
takes immediate possession of the tangible personal property, or the company delivers or arranges
for the property to be delivered to the purchaser. 86 Ill. Adm. Code 270.115(c)(3)(A).
Drop Shipments
A drop-shipment situation is normally one in which out-of-State purchaser (Purchaser) makes
a purchase for resale from a company (Company) which is registered with Illinois and has that
Company drop-ship the property to Purchaser’s customer (Customer) located in Illinois. For
purposes of this discussion, it is assumed that Purchaser is an out-of-State company that is not
registered with the State of Illinois and does not have sufficient nexus with Illinois to require it to
collect Illinois Use Tax.
Company, as a seller required to collect Illinois tax, must either charge and collect tax or
document appropriate exemptions when making deliveries in Illinois. In order to document the fact
that its sale to Purchaser is a sale for resale, Company is obligated by Illinois to obtain a valid
Certificate of Resale from Purchaser. See 86 Ill. Adm. Code 130.1405. A Certificate of Resale is a
statement signed by the purchaser that the property purchased by him is purchased for purposes of
resale. In addition to the statement that the property is being purchased for resale, a Certificate of
Resale must contain:
1) The seller's name and address;
2) The purchaser's name and address;
3) A description of the items being purchased for resale;
4) Purchaser's signature, or the signature of an authorized employee or agent of the
purchaser, and date of signing; and

ST 18-0018-GIL
Page 7
5) Registration Number, Resale Number, or a statement that the purchaser is an out-of- State
purchaser who will sell only to purchasers located outside the State of Illinois.
The Department provides a standard form for documenting sales for resale (Form CRT-61
Certificate of Resale). This form can be obtained from the Department’s website.
The obligations of a seller with respect to accepting a Certificate of Resale were addressed in
Rock Island Tobacco and Specialty Company v. Illinois Department of Revenue, 87 Ill.App.3d 476,
409 N.E.2d 136, 42 Ill. Dec. 641 (3rd Dist. 1980). The Rock Island court held that when a retailer
obtains a proper Certificate of Resale that contains a registration or resale number that is valid on the
date it is given, the retailer’s liability is at an end. If the purchaser uses that item himself or herself
(i.e., it was not purchased for resale), the Department will proceed against the purchaser, not the
retailer, provided the above stated conditions are met. The purchaser’s registration or reseller
number can be verified at the Department’s website by clicking on the “Tax registration inquiry” box.
Failure to present an active registration number or resale number and a certification to the
seller that a sale is for resale creates a presumption that a sale is not for resale. This presumption
may be rebutted by other evidence that all of the seller’s sales are sales for resale or that a particular
sale is a sale for resale. For example, other evidence that might be used to document a sale for
resale, when a registration number or resale number and certification to the seller are not provided,
could include an invoice from the purchaser to his customer showing that the item was actually
resold, along with a statement from the purchaser explaining why it had not obtained a resale number
and certifying that the purchase was a purchase for resale in Illinois. The risk run by a retailer in
accepting such other documentation and the risk run by purchasers in providing such other
documentation is that an Illinois auditor is more likely to require that more information be provided as
evidence that the particular sale was, in fact, a sale for resale.
If you have further questions related to the Illinois sales tax laws, please visit our website at
www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.
Very truly yours,

Richard S. Wolters
Associate Counsel
RSW:bkl