Does a company that arranges events for clients have to charge sales tax on its service fees, and how does gross receipts tax apply to caterers?

Plain-English summary

An event-planning company asked the Illinois Department of Revenue whether it could avoid charging sales/use tax on the service fees it bills to clients. The company coordinates corporate meetings and events, negotiating contracts on its clients' behalf with restaurants, caterers, equipment rental providers, and performers. It does not sell food, rent equipment, or resell tickets itself, does not hold inventory, and folds its own service fee into the total amount it invoices clients without separately itemizing the underlying vendor costs. The company argued that because it is a service provider rather than a retailer, taxing its service fees on top of the sales/use tax its vendors already charge would create improper "pyramiding" of tax.

The Department's response distinguished between two possible roles: acting as a "party planner" that also functions as a caterer (i.e., actually selling food), versus arranging events where no tangible personal property changes hands at all. The tax outcome differs sharply depending on which describes the business. The Department used the opportunity to restate Illinois's long-standing gross receipts rule for caterers: a caterer's Retailers' Occupation Tax (ROT) liability is based on its entire gross receipts from selling food, and none of a caterer's overhead costs -- linens, tables, chairs, dishes, glasses, flowers, labor, set-up, or delivery -- can be deducted from that taxable base, even if those items are separately itemized on the customer's invoice. The only exception is for charges genuinely unrelated to the food sale (e.g., entertainment/musicians) that are separately listed and initialed by the customer.

The letter also addresses banquet room rentals under 86 Ill. Adm. Code 130.2145(e): if the true object of a transaction is renting the room and food/beverages are only incidental (limited to items like coffee, tea, soft drinks, or snacks such as cookies or popcorn), the room charge itself is not taxed. But if food other than snacks, or any alcohol, is served, the Department treats the sale of food as the true object of the transaction, and the caterer/banquet provider owes ROT on its entire gross receipts, including the room rental charge.

Finally, the Department confirmed the flip side of the coin for pure service providers: the Retailers' Occupation Tax, Use Tax, Service Use Tax, and Service Occupation Tax all apply only where there is a transfer of tangible personal property. A company that genuinely never sells or transfers tangible personal property -- and merely arranges for its clients to buy from other vendors -- does not incur tax liability on the coordination/service fees it charges.

What this means for you

Caterers and banquet/event providers

If you sell food as part of your business, Illinois taxes your entire gross receipts from that sale -- you cannot deduct overhead like linens, tableware, flowers, labor, set-up, or delivery, even if you list those charges separately on the customer's invoice. The only charges that escape tax are ones unrelated to the food itself (like a band or DJ) if they are separately stated and the customer signs off on them. If you rent out banquet rooms, keep the food/beverage service genuinely incidental (non-alcoholic drinks and simple snacks only) if you want the room charge itself to stay untaxed; serving a meal or any alcohol pulls the whole transaction, room charge included, into taxable gross receipts.

Event planners, meeting coordinators, and other pure service providers

If your business coordinates events but does not itself sell or transfer any tangible personal property -- you don't own inventory, you don't resell tickets or rentals, you just negotiate contracts on your clients' behalf with vendors who bill and tax those vendors' own sales -- your service fees generally fall outside the Retailers' Occupation Tax, Use Tax, Service Use Tax, and Service Occupation Tax. The critical fact question is whether you are truly just coordinating (no transfer of property) or whether you are, in substance, acting as a caterer or reseller yourself.

Accountants and tax professionals

This GIL is a useful refresher on 86 Ill. Adm. Code 130.410 (no deduction from gross receipts for cost of doing business) and 130.2145 (caterers), plus the 130.2145(e) banquet-room "true object" test. Because this is a GIL rather than a PLR, it is not binding and does not resolve the specific taxpayer's facts -- the Department explicitly told the requester that its own liability "will differ depending upon the activities you engage in," implying the facts as presented were not conclusive enough for a binding ruling on point.

Common questions

Q: Can a caterer deduct costs like linens, flowers, or delivery from its taxable gross receipts?
A: No. Illinois law (35 ILCS 120/1) defines "selling price" without any deduction for the cost of materials, labor, service costs, or "any other expense whatsoever," and 86 Ill. Adm. Code 130.410 reinforces that freight, transportation, and other expenses are not deductible. A caterer's entire gross receipts from selling food are taxable, even if items like linens or delivery are separately billed.

Q: Are entertainment charges (like a band) at a catered event taxable?
A: No, as long as they are unrelated to the food sale, separately listed on the customer's invoice, and initialed by the customer.

Q: Is a banquet room rental taxable if food is served?
A: It depends on the "true object" of the transaction. If food/beverages are only incidental (non-alcoholic drinks or simple snacks like cookies, popcorn, candy, doughnuts, fruit, or raw vegetables) and not separately charged, the rentor owes Use Tax on the cost of that food, not ROT on the room. If food beyond snacks or any alcohol is served, the Department treats the food sale as the true object, and the provider owes Retailers' Occupation Tax on its full gross receipts, including the room rental charge.

Q: Does a company that just arranges events for clients (without selling anything itself) owe sales tax on its service fees?
A: Not according to this GIL's general statement of law: the Retailers' Occupation Tax, Use Tax, Service Use Tax, and Service Occupation Tax apply only when there is a transfer of tangible personal property. A business that purely coordinates contracts with vendors, and never itself sells or transfers property, does not incur liability on those coordination fees. Note the Department did not confirm this specific taxpayer met that description -- it said the outcome depends on which activities are actually engaged in.

Q: Is this GIL binding on the Department?
A: No. It is a General Information Letter under 2 Ill. Adm. Code 1200.120, meant to point the taxpayer to the relevant rules -- it is not a statement of Department policy and does not bind the Department, unlike a Private Letter Ruling.

Citations and references

• 86 Ill. Adm. Code 130.101 (imposition of the Retailers' Occupation Tax on sellers of tangible personal property)
• 86 Ill. Adm. Code 130.2145 (caterers incur ROT liability on gross receipts from selling meals)
• 86 Ill. Adm. Code 130.2145(e) (taxability of banquet room charges; "true object" test)
• 35 ILCS 120/1 (Retailers' Occupation Tax Act; definition of "selling price" with no deduction for costs/expenses)
• 86 Ill. Adm. Code 130.410 (freight, transportation, and other expenses not deductible from gross receipts)

Subject

Gross Receipts

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2020.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2020/st20-0003-gil.pdf

Original ruling text

ST 20-0003-GIL 02/28/2020 GROSS RECEIPTS
Caterers incur Retailers' Occupation Tax liability on their entire gross receipts from sale,
without deductions on account of overhead costs, such as charges for linens, dishes, flowers
or delivery. (This is a GIL.)
January 28, 2020

Dear Xxxx:
This letter is in response to your letter dated September 19, 2019, 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:
Our firm, on behalf of our client ("Company"), is respectfully seeking sales/use tax
guidance. Following below is our statement of the issue, a summary of the relevant
facts, as well as discussion and analysis of the issue. We appreciate your response
to this request.
Issue:
The Company holds itself out, and habitually engages, as a service provider to its
clients. Is it proper for the Company to not charge sales/use taxes on the fees it
invoices its clients?
Facts:
The Company is a corporation that maintains its headquarters and principal place of
business in State X. The Company also maintains local offices in various states,
including [State at Issue].
The Company is a service provider: The Company helps coordinate meetings and
events. Nearly all of the Company's clients are businesses. The types of meetings
held by these clients include employee meetings, client meetings, and investorrelationship meetings.
The Company's only location(s) in [State] is/are the rented office where the
Company's employees work. The Company does not own or hold any inventory,
and the Company does not hold itself out as a retailer.

ST 20-0003-GIL
Page 2
The Company oftentimes is referred new clients through the Company's relationships
with various management and marketing associations and foundations. The Company's
clients seek assistance in arranging an event with a particular focus such as corporate
social responsibility (CSR) team building. A well-run CSR program can help build
bonds, strengthen communication skills, and boost morale, while making a positive
difference in the world. Oftentimes, the client may desire for the event to be held in a
different city or state than where the client is located.
To make the event a success, the Company negotiates contracts with various
providers, including restaurants and caterers, equipment rental providers, and
performing artists (e.g., singers, bands, caricature artists). The Company may also
purchase tickets for attendees to attend a theater or a sporting event.
The Company does not solicit the sale of, or make any sales, to individuals and
businesses, of food, rental equipment, or any theater or sporting event tickets on a
standalone basis. Rather, the Company is engaged in coordinating various contracts
for clients to help shape an experience for the client.
The Company negotiates the fee amount with its clients based on various factors,
including number of participants/attendees, the location, the date of the event, and
the type of event sought. The Company does not share with its clients the various
invoices that it receives. Instead, the Company embeds its service fee (i.e., the
Company's net service revenue) into its estimated sum of payments made to other
service providers when the Company presents invoices to clients.
The Company is not a "marketplace facilitator." The Company does not facilitate
sales for any third-party retailers. The Company does not operate any e-commerce
forum for its clients to make purchases from any service provider or seller of
tangible personal property.
Discussion and Analysis:
The Company is not a retailer. It does not own or hold any inventory. It does not
hold itself out as, or make, retail sales of tangible personal property at any
Company location.
The Company is a service provider. In fulfilling its service contract terms with its
clients, the Company contracts with other businesses, including restaurants,
individual artists, performers, and ticket sellers/brokers. The locations at issue vary
with each contract for each client.
The Company receives invoices that include the applicable sales/use taxes on the
charges from various contracting parties (restaurants, equipment rental companies,
ticket sellers/brokers, etc.) The Company pays the invoice amount, including the
sales/use taxes charged.
The Company maintains that as a service provider, it is appropriate for the Company to
pay the sales/use taxes invoiced by its supplier. Further, the Company maintains that it

ST 20-0003-GIL
Page 3
is appropriate for it not to charge sales/use tax on the fees it charges its clients. Doing
so would create a pyramiding or cascading of sales/ use taxes.
The various parties with whom the Company contracts have (or should have) the
knowledge of the particular sales/ use tax laws as applied to their location and the
nature of the goods and services that they provide, including any special local
sales/use tax laws that apply to restaurants, theater, equipment rental, etc. The
Company asserts that the sales/use tax laws are properly applied to these parties,
and not to the Company's service revenues it receives from its clients.
The Company notes that some states have already ruled on this issue and held that a
business that is similar to the Company's business should pay sales /use taxes on its
purchases (and not on its sales). See, e.g., In the Matter of Key Events, Inc. (Cal. State
Board of Equalization Nov. 14, 2017). While we acknowledge that this California ruling
is not binding on [State], we believe that it carries persuasive value, and we ask that you
find that your sales/use tax laws apply to the above facts in a similar manner.
Moreover, in speaking with a number of competitors in the Company's industry, others
also view their business as a professional service provider and they do not charge sales
taxes but, instead, pay sales taxes invoiced from the various providers (restaurants,
caterers, and alike). Indeed, we maintain that the client's true object is the Company's
services in arranging the event.

DEPARTMENT’S RESPONSE:
Your letter indicates that you are engaged in business as a "party planner." In some
instances, you act as a caterer. In other instances, you may not act as a caterer, and only arrange
events in which no tangible personal property is transferred. The tax liabilities you incur will differ
depending upon the activities you engage in.
The Retailers' Occupation Tax is imposed upon persons engaged in this State in the business
of selling tangible personal property for use or consumption. See 86 Ill. Adm. Code 130.101.
Persons that are engaged in the business of selling meals to purchasers for use or consumption incur
Retailers' Occupation Tax liability on their gross receipts from such sales. Such persons specifically
include caterers. See Section 130.2145.
Retailers' Occupation Tax is based upon the "selling price" of the tangible personal property
sold. Section 1 of the Retailers' Occupation Tax Act defines the term, "selling price," as the
"consideration for a sale valued in money … and shall be determined without any deduction on
account of the cost of the property sold, the cost of materials used, labor or service cost or any other
expense whatsoever…." See, 35 ILCS 120/1. As indicated by this definition, a retailer's costs of
doing business are not deductible from his gross receipts. This principle is also articulated in Section
130.410 of the Department's rules. The regulation specifically states that in calculating Retailers'
Occupation Tax liability, "freight or transportation costs … or any other expenses whatsoever" are not
deductible from gross receipts.
As a result, tax is imposed upon a caterer's entire gross receipts from sale, without any
deduction on account of service costs or other overhead costs. A caterer's gross receipts would

ST 20-0003-GIL
Page 4
include all receipts associated with his sale of food. Such costs would include charges for linens,
tables, chairs, dishes, glasses, flowers, labor and set-up and delivery. Each of these items is a part
of your cost of doing business as a caterer. It is immaterial that the customer is separately billed for
the price of these items. They are simply costs of doing business as a caterer, just as they would be
part of the overhead expenses incurred by a restaurant owner.
When a caterer makes separate charges to customers for items which are not associated with
the sale of food, such items are not taxable, provided that they are separately listed on the invoice to
the customer and are initialed by the customer. This would be the case, for instance, with charges for
entertainment (musicians or bands).
Please also see 86 Ill. Adm. Code 130.2145(e) for the taxability of charges for banquet rooms.
If the true object of the transaction is the rental of the banquet room, and if food or beverages are
provided only incidentally to the room rental, no tax is incurred on the charges for the room rental.
The Department deems an incidental provision of food or beverages to include the providing of nonalcoholic beverages, such as coffee, tea and soft drinks, and the providing of snacks, such as
cookies, popcorn, candy, doughnuts, fruits and raw vegetables. If no separate charge is made under
the contract for the incidental amount of food or beverages provided, the rentor is considered the user
of the food or beverages and incurs Use Tax on its cost price of the food or beverages transferred
incidentally to the rental of the room. If a separate charge is made for the food and beverages
transferred incidentally to the rental of the room, the rentor incurs ROT on the selling price of the food
or beverages. If the true object of the transaction is the sale of food or beverages, any room rental
charges are part of the seller’s cost of doing business and are includable in the seller’s gross receipts
even if the charges for the room rental are separately stated on the agreement between the seller and
its customers.
Please note that if foods other than snacks are provided or if alcohol is provided, the Department
deems the sale of food or beverages, not the rental of the room to be the true object of the
transaction. In this situation, the banquet provider would incur Retailers’ Occupation Tax on its gross
receipts from the sale of the food and beverages, along with any charges made for the rental of the
room.
Persons who are engaged in activities in which no tangible personal property is transferred do
not incur tax liability. The Retailers' Occupation Tax, Use Tax, Service Use Tax and Service
Occupation Tax apply only when there is a transfer of tangible personal property.
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,

Richard S. Wolters
Associate Counsel
RSW:rkn