If my business sells, installs, and repairs garage doors in Illinois, do I owe sales tax, use tax, or both on the materials and labor involved?

Subject

Service Occupation Tax

Plain-English summary

A business that had just purchased a garage door sales, installation, and repair company in Illinois wrote to the Department of Revenue asking how sales and use tax applied to its work. The taxpayer laid out five specific scenarios: (1) a service call where the company charges separately for labor and for materials used to fix a homeowner's garage door; (2) a quoted installation project billed as one lump sum covering both materials and labor; (3) the same kind of quoted project, but with materials and labor broken out separately on the quote; (4) an over-the-counter sale of garage door remote controls to a walk-in customer; and (5) an over-the-counter sale of garage doors themselves to a walk-in customer who will install them.

The Department responded with a General Information Letter (GIL) rather than answering each numbered scenario individually. Instead, it laid out the general legal framework that governs these situations:

• Sales tax basics. The Retailers' Occupation Tax (ROT) applies to businesses selling tangible personal property to purchasers for use or consumption (86 Ill. Adm. Code 130.101), while Use Tax applies to the privilege of using tangible personal property in Illinois that was purchased at retail (86 Ill. Adm. Code 150.101). Together these are commonly called "sales tax" in Illinois, and a retailer can reduce the Use Tax it must remit by the ROT liability it pays to the Department on the same sale (86 Ill. Adm. Code 150.130).
• Construction contractors. A contract for both the sale and installation of tangible personal property that is permanently affixed to a structure is a construction contract, and this specifically includes persons who install and repair garage doors. Construction contractors are treated as end users of the tangible personal property they incorporate into real property, meaning they owe Use Tax on their own cost price for that property (86 Ill. Adm. Code 130.1940 and 130.2075) — not Retailers' Occupation Tax on what they charge the customer. If the contractor didn't already pay Use Tax to its supplier, it must self-assess and remit that Use Tax directly to the Department, though it may get credit for tax properly paid to another state (86 Ill. Adm. Code 150.310).
• Resale certificates. If a seller wants to document that a sale is a sale-for-resale (so no tax is owed by the seller), it must obtain a valid Certificate of Resale from the purchaser containing specific elements: the seller's name and address, the purchaser's name and address, a description of the resold items, the purchaser's signature and date, and a registration or resale number (or an out-of-state statement) — all per 86 Ill. Adm. Code 130.1405. Citing Rock Island Tobacco and Specialty Co. v. Illinois Department of Revenue, 87 Ill. App. 3d 476 (3d Dist. 1980), the Department noted that once a retailer obtains a proper Certificate of Resale with a valid registration or resale number, the seller's liability ends — the Department will instead pursue the purchaser if the item wasn't actually resold. Failing to get a resale number or certification creates a presumption the sale is not for resale, though that presumption can be rebutted with other evidence.

The letter does not walk through which of the taxpayer's five numbered scenarios falls into which category, and does not state a tax rate, a specific dollar result, or which party (contractor-as-end-user versus retailer-of-tangible-personal-property) applies to each fact pattern the taxpayer described. It gives the general rules and leaves the taxpayer to apply them.

What this means for you

Garage door (and similar) installation and repair businesses

Whether you owe Use Tax on your own cost for materials, or ROT on what you charge the customer, likely turns on whether a given transaction is a construction contract (installing/affixing a garage door to real property) versus a straight retail sale (selling a part or unit over the counter without installation). The letter indicates that installing and repairing garage doors affixed to real property falls under the construction-contractor rules, meaning Use Tax is based on your cost price for the materials — not on what you bill the customer for labor and materials combined.

Accountants and tax professionals advising contractor-retailers

Because this business does both installation work and over-the-counter retail sales, it may need to track and tax transactions differently depending on which category each falls into. The letter's discussion of resale certificates matters if this business also buys materials for resale to other contractors or retailers — a valid Certificate of Resale under 86 Ill. Adm. Code 130.1405 can shift the tax exposure to the purchaser.

Anyone relying on this letter

This is a General Information Letter, not a Private Letter Ruling. It is not a statement of Department policy and is not binding on the Department (2 Ill. Adm. Code 1200.120). It also does not resolve the taxpayer's specific numbered scenarios — it only supplies the general legal framework. A taxpayer wanting a binding answer on its exact facts would need to request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Common questions

Q: Did the Department directly answer the taxpayer's five specific scenarios (service call, lump-sum quote, itemized quote, over-the-counter remote sale, over-the-counter door sale)?
A: No. The letter restates the general Sales Tax, Use Tax, construction-contractor, and resale-certificate rules, but it does not walk through each of the five numbered scenarios and state how tax applies to that specific fact pattern.

Q: Does a garage door installer pay sales tax or use tax on the doors and parts it installs?
A: According to the letter, a construction contractor (which the Department says includes persons who install and repair garage doors) is treated as the end user of tangible personal property it permanently affixes to real property, and so owes Use Tax based on its own cost price for that property — not Retailers' Occupation Tax on the amount billed to the customer.

Q: What happens if the contractor didn't pay Use Tax to its supplier when it bought the materials?
A: The letter states that such contractors must register with the Department and self-assess and pay the Use Tax liability directly, though they can get credit against their Illinois Use Tax if they already paid a properly-due tax to another state.

Q: What does a business need to accept from a customer to document a sale as a sale-for-resale?
A: A valid Certificate of Resale under 86 Ill. Adm. Code 130.1405, containing the seller's name and address, the purchaser's name and address, a description of the resold items, the purchaser's (or authorized agent's) signature and date, and either a registration/resale number or a statement that the purchaser is an out-of-state purchaser who sells only outside Illinois.

Q: If a seller accepts a resale certificate but the purchaser actually keeps the item for personal use instead of reselling it, who owes the tax?
A: Per the letter's citation to Rock Island Tobacco and Specialty Co. v. Illinois Department of Revenue, once a seller obtains a proper Certificate of Resale with a valid registration or resale number, the seller's liability ends — the Department pursues the purchaser instead, provided the certificate requirements were met.

Q: Is this letter binding on the Illinois Department of Revenue?
A: No. It is a General Information Letter issued under 2 Ill. Adm. Code 1200.120, and by its own terms is not a statement of Department policy and is not binding on the Department. A taxpayer wanting a binding answer would need a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

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-18-0024-gil.pdf

Original ruling text

ST 18-0024-GIL 09/13/2018 SERVICE OCCUPATION TAX
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. (This is a GIL.)

September 13, 2018

Dear Xxxxx:
This letter is in response to your letter, 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 spoke with NAME in the State of Illinois Sales tax division. We have purchased a
business in Illinois and want to make sure we are handling the sales tax situation on
products that we well (sic) correctly. After discussions with her, I asked for some
correspondence to put in the file to substantiate the conclusions given. She suggested
that I request a letter ruling to determine the proper way of handling sales/use tax
situations in our business.
I am requesting a ruling of the following scenarios. We sell and service garage doors,
openers and related items on homes and businesses. Once they are affixed to the
home or business they become real property.

1. Service Call- A homeowner calls us and asks us to fix their garage door. We go to
   the homeowner’s residence and replace a few parts and service the door. Our
   charge for this y [sic] is $$$ for the labor charges and we then charge $$$ for the
   materials used. We actually only paid $$$ for the materials when we purchased
   from our supplier. Please explain the tax, whether use and or sales in this situation
   and clarify what amounts are being taxed and under what classification (use or
   sales).
2. Quoted Project(Sample A) – Showing one lump sum amount for the project on the
   quote (the amount includes both materials and labor). Please see attached marked

ST 18-0024-GIL
Page 2
“Sample A” We quoted $$$ for the project. Labor is $$$ and materials is $$$. We
only paid $$$ for the materials from our supplier. Please let us know how this will be
handled for sales and use tax purposes under the above scenario.

3. Quoted Project (Sample B) – Showing a breakdown of sales price of sales price of
   materials and labor on the quote to the customer. Please see attached marked
   “Sample B” Again the same scenario as above but with the quote being $$$ but we
   show a breakdown of materials and labor that arrive at the $$$ total on the quote.
   Labor is $$$ and materials is $$$. We only Paid $$$ for the materials from our
   supplier. Please let us know how this will be handled for sales and use tax purposes
   under the above scenario. In addition, how and why is this scenario different from
   number 2(Sample A) above? If it actually is.
4. Over the Counter Sales – A customer comes in to our showroom and purchases 2
   remote controls for this garage door openers. We sell the materials to the customer
   for $$$ and we purchased the remotes from our supplier for $$$. Under this
   circumstance, please provide any sales or use tax scenarios. If we are to pay use
   tax when we purchase materials, and sales tax when we sell, how do we get credit
   for the sales tax that we paid on the sales or use tax return.
5. Over the Counter Sales – A customer comes in to our showroom and purchases 2
   garage doors to install on his house. We sell the materials to the customer for $$$
   and we purchased the doors from our supplier for $$$. Under this circumstance,
   please provide any sales or use tax scenarios. If we are to pay use tax when we
   purchase materials, and sales tax when we sell, how do we get credit for the sales
   tax that we paid on the sales or use tax return.
   The above scenarios are the majority of our business. We would appreciate clarification
   on the above in order that we can properly report our sales and use tax obligations to
   the State of Illinois. Your prompt written response is greatly appreciated. The response
   can be emailed to me directly. I can also be reached at ###.
   DEPARTMENT’S RESPONSE:
   Sales 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
   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.
   Construction Contractors
   A contract that provides for both the sale and installation of tangible personal property that is
   permanently affixed or incorporated into a structure is considered a construction contract. The tax
   liabilities regarding construction contractors in Illinois may be found at 86 Ill. Adm. Code 130.1940

ST 18-0024-GIL
Page 3
and 130.2075 on the Department’s website. The term construction contractor includes general
contractors, subcontractors, and specialized contractors such as landscape contractors. This would
include persons who install and repair garage doors. In Illinois, construction contractors are deemed
end users of tangible personal property purchased for incorporation into real property. As end users
of such tangible personal property, these contractors incur Use Tax liability for such purchases based
upon their cost price of the tangible personal property. See 86 Ill. Adm. Code 130.1940 and 86 Ill.
Adm. Code 130.2075.
Therefore, any tangible personal property that a construction contractor purchases that he or
she will permanently affix to or incorporate into real property in this State will be subject to Use Tax. If
such contractors did not pay the Use Tax liability to their suppliers, those contractors must register
and self-assess their Use Tax liability and pay it directly to the Department. If the contractors have
already paid a tax in another state regarding the purchase or use of such property, they will be
entitled to a credit against their Illinois Use Tax liability to the extent that they have paid tax that was
properly due to another state. See 86 Ill. Adm. Code 150.310.
Resale Certificates
If a seller has nexus in Illinois, in order to document the fact that its sale to a purchaser is a
sale for resale, a seller is obligated by Illinois to obtain a valid Certificate of Resale from the
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)
2)
3)
4)
5)

The seller's name and address;
The purchaser's name and address;
A description of the items being purchased for resale;
Purchaser's signature, or the signature of an authorized employee or agent of the
purchaser, and date of signing; and
Registration Number, Resale Number, or a statement that the purchaser is an out-ofState purchaser who will sell only to purchasers located outside the State of Illinois.

The Department provides a standard form for documenting sales for 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 seller’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 seller,
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,

ST 18-0024-GIL
Page 4
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 seller 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.
In sum, a valid resale certificate must contain all of the information required in 86 Ill. Adm.
Code 130.1405. For your reference, this information is also listed above.
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

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