Does an out-of-state company that has an Illinois employee and buys personalized debit/prepaid cards from printers owe Illinois Retailers' Occupation, Use, or Service Occupation Tax on those cards, depending on where the printer ships them and whether they are resold, given away, or destroyed unfinished?

Plain-English summary

The Illinois Department of Revenue issued this Private Letter Ruling to an out-of-state company that provides its business customers with personalized plastic debit and prepaid payment cards (along with other services) as part of a service contract. Because the company has one employee who resides in Illinois, the Department treated it as a "serviceman maintaining a place of business" in Illinois under the Service Use Tax Act, obligating it to either collect Service Use Tax or, since it told the Department it qualifies as an unregistered de minimis serviceman, to self-assess Illinois Use Tax on its cost price for cards used in Illinois.

The company asked the Department to confirm the tax treatment of six scenarios covering cards printed in Illinois or out of state, personalized or left unfinished, and ultimately resold to customers, given away free, or destroyed. The Department's answers turned on two things: (1) whether the finished cards were shipped by the printer directly to a recipient inside or outside Illinois, and (2) whether the cards were ever personalized/usable or were destroyed while still unfinished.

• Cards shipped by an Illinois printer straight to out-of-state recipients (sold or given away) qualify for Illinois's interstate commerce exemption — no Retailers' Occupation Tax or Use Tax applies.
• Cards shipped to Illinois recipients — whether resold to Illinois customers or given away free — trigger Illinois Use Tax, based on the company's cost price to the printer (as an unregistered de minimis serviceman, the company must self-assess and remit this tax; it is not authorized to collect a "tax" from its own customers).
• Cards purchased from an out-of-state printer and shipped by that printer to Illinois recipients (free or for resale) also trigger Illinois Use Tax on the company, though it can claim credit for tax properly paid to another state.
• Unfinished, unpersonalized cards that are destroyed before they become usable are not subject to tax if destroyed outside Illinois; if destroyed in Illinois, Use Tax applies to their fair market value at destruction (unless Use Tax was already paid on them to an Illinois supplier).
• Prepayments the company's own customers make before the cards are personalized do not, by themselves, create a taxable sale, because no transfer of title/use has yet occurred (citing United Tech Corp v. Dep't of Revenue).

What this means for you

Out-of-state companies with even one Illinois employee

Having a single employee residing in Illinois can be enough to make an out-of-state business a "serviceman maintaining a place of business" in Illinois for Service Use Tax purposes, triggering registration, collection, or self-assessment obligations you might not expect from a company headquartered and operated almost entirely elsewhere.

Servicemen who provide personalized tangible goods as part of a service (card issuers, print/mail vendors, kitting companies)

If you're a "de minimis" serviceman (aggregate cost of transferred property under 35% of gross service receipts, 75% for pharmacists/graphic arts), your tax treatment depends heavily on whether you're registered. Unregistered de minimis servicemen pay Use Tax to their suppliers (or self-assess if the supplier isn't registered) and cannot pass a separately stated "tax" charge to their own customers. Where the finished, personalized goods are shipped — in-state vs. out-of-state — is the single biggest driver of whether tax is owed at all.

Accountants and tax professionals structuring interstate shipment terms

The ruling leans heavily on the interstate commerce exemption at 86 Ill. Adm. Code 130.605/140.501: tax-free treatment requires that the seller (here, the printer), not the purchaser, is contractually obligated to deliver the goods from an Illinois point to an out-of-state point, with adequate proof (bill of lading, mail receipt, or delivery affidavit) retained in the seller's records.

Businesses destroying unfinished/unusable inventory

Destruction of tangible personal property before it becomes usable is not a taxable "use" — but only if you can show the property was truly unfinished/unusable and where the destruction occurred. Destruction inside Illinois of already-title-transferred (even if unfinished) property triggers Use Tax on fair market value unless Use Tax was already paid upstream.

Common questions

Q: Why does one Illinois-resident employee matter so much for an out-of-state company's tax obligations?
A: Under 35 ILCS 110/2 and 86 Ill. Adm. Code 160.130(c), an out-of-state serviceman with an employee residing in Illinois is a "serviceman maintaining a place of business" here, which generally requires registering and collecting Service Use Tax from Illinois customers (unless it qualifies to pay Use Tax on cost price instead as a de minimis serviceman, per 86 Ill. Adm. Code 140.108).

Q: Does the interstate commerce exemption apply if the customer arranges or pays for shipping?
A: The exemption can still apply even if the purchaser arranges for the carrier or pays the carrier that effects delivery, as long as the seller (the printer) is contractually obligated to deliver the goods from Illinois to a point outside Illinois and actual delivery is made and documented, per 86 Ill. Adm. Code 130.605.

Q: Is Illinois Use Tax owed on cards given away free to Illinois recipients?
A: Yes. Giving property away free of charge to an Illinois recipient does not avoid tax — the company must report and remit Illinois Use Tax measured by what it paid the printer (deposit plus final payment) for those cards.

Q: Does making a deposit or prepayment before the cards are personalized create a taxable sale?
A: No. Citing United Tech Corp v. Dep't of Revenue, the ruling holds that prepayments made before title/ownership actually transfers are not taxable gross receipts. A retail sale occurs only once the cards are personalized (usable) and shipped per the customer's instructions.

Q: What happens if unfinished cards are simply destroyed instead of personalized?
A: If destroyed outside Illinois, no Illinois tax applies. If destroyed inside Illinois, Use Tax applies on the cards' fair market value at the time of destruction — unless Use Tax was already paid to an Illinois supplier when the cards were purchased, in which case no additional tax is owed.

Citations and references

Statutes and rules:

• 35 ILCS 120/1 (definition of "sale at retail" under the Retailers' Occupation Tax Act)
• 35 ILCS 110/2 (Service Use Tax Act — "serviceman maintaining a place of business in this State")
• 86 Ill. Adm. Code 130.101, 130.605 (Retailers' Occupation Tax; interstate delivery exemption and proof requirements)
• 86 Ill. Adm. Code 140.101, 140.108, 140.109, 140.145, 140.301(a), 140.501 (Service Occupation Tax Act — tax base methods, de minimis servicemen, multi-service transactions, interstate exemption)
• 86 Ill. Adm. Code 150.101, 150.201, 150.310(a)(3) (Use Tax Act — imposition, definition of "use," credit for tax paid to another state)
• 86 Ill. Adm. Code 160.101, 160.115, 160.130(c) (Service Use Tax Act — rate/base, de minimis cost-price base, out-of-state serviceman registration)
• 86 Ill. Adm. Code 280.115 (local service occupation tax situs)

Case law and prior rulings:

• United Tech Corp v. Dep't of Revenue, 107 Ill. App. 3d 1062, 438 N.E.2d 535 (1st Dist. 1982) (prepayments without transfer of title are not taxable)
• Illinois Private Letter Ruling No. ST 87-0313-PLR (05/05/1987) (agency analysis for direct-mail shipments)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2022.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2022/st22-0001-plr.pdf

Original ruling text

ST-22-0001 01/06/2022 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 PLR.)
January 6, 2022
Dear NAME
This letter is in response to your letter dated February 12, 2021, 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.
Review of your request disclosed that all the information described in paragraphs
1 through 8 of Section 1200.110 appears to be contained in your request. This Private
Letter Ruling will bind the Department only with respect to COMPANY, for the issue or
issues presented in this ruling, and is subject to the provisions of subsection (e) of
Section 1200.110 governing expiration of Private Letter Rulings. Issuance of this ruling
is conditioned upon the understanding that neither COMPANY, nor a related taxpayer is
currently under audit or involved in litigation concerning the issues that are the subject
of this ruling request. In your letter you have stated and made inquiry as follows:
On behalf of our client, COMPANY ("COMPANY"), PARTNERSHIP
("PARTNERSHIP") respectfully requests a Private Letter Ruling
pursuant to 2 Illinois Administrative Code 1200.110. An executed
power of attorney is attached hereto as Exhibit "A."
COMPANY identifying information is set out as follows:
COMPANY
ADDRESS
Federal ID No.: ##-#######
This issue is not under consideration by the Illinois Department of
Revenue in connection with an audit examination of any type, a refund

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request, a voluntary disclosure agreement, an administrative hearing,
or litigation for COMPANY.
COMPANY may make a similar request to a taxing jurisdiction of
another state, upon review-of the laws and regulations of the state.
Documents
Power of Attorney (Exhibit A)
Statement of Relevant Facts
COMPANY is a STATE corporation headquartered in CITY, STATE.
COMPANY has an employee that resides in Illinois. COMPANY
purchases plastic debit and prepaid payment cards which are resold
or given away to their business customers. The cards are initially
ordered by COMPANY from either an Illinois printer, or printers
located outside of Illinois.
At the time the cards are printed,
COMPANY pays a deposit to the printer, and takes title of the cards
while they remain unfinished with the printer. COMPANY may also
invoice their customer an initial fee for the cards before they are
printed.
After the initial printing of the cards, they may be
subsequently personalized based on instruction from COMPANY’S
customers. Prior to personalization, the cards are unusable and
considered unfinished. Given these facts, the following scenarios
are possible:
1.

Cards are printed by an IL printer and:
a.
The cards are personalized by the IL printer based on
instructions received from COMPANY’S customers, as
relayed to the printer by COMPANY. The personalized
cards are shipped from the IL printer to COMPANY’S
customers located within IL. COMPANY charges the
customers for the personalized cards.
b.
The cards are personalized by the IL printer based on
instructions received from COMPANY’S customers, as
relayed to the printer by COMPANY. The personalized
cards are shipped from the IL printer to COMPANY’S
customers located outside of IL. COMPANY charges the
customers for the personalized cards
c.
The cards are personalized by the IL printer based on
instructions received from COMPANY’S customers, as
relayed to the printer by COMPANY. The personalized
cards are shipped from the IL printer to COMPANY’S

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d.

e.

2.

customers located within IL. COMPANY’S customers
receive these cards free-of-charge.
The cards are personalized by the IL printer based on
instructions received from COMPANY’S customers, as
relayed to the printer by COMPANY. The personalized
cards are shipped from the IL printer to COMPANY’S
customers located outside of IL. COMPANY’S customers
receive these cards free-of-charge.
The cards are not personalized, and are therefore
unusable, and are subsequently destroyed by the IL
printer.

Cards are printed by a non-IL printer and:
a.
The cards are personalized by the non-IL printer based on
instructions received from COMPANY’S customers, as
relayed to the printer by COMPANY. The personalized
cards are shipped to COMPANY’S customers located
within IL. COMPANY charges the customers for the
personalized cards
b.
The cards are personalized by the non-IL printer based
on instructions received from COMPANY’S customers, as
relayed to the printer by COMPANY. The personalized
cards are shipped to COMPANY’S customers located
within IL. COMPANY’S customers receive these cards
free-of-charge.
c.
The cards are not personalized, and are therefore
unusable, and are subsequently destroyed by the printer.

Requested Ruling
COMPANY respectfully requests a private letter ruling confirming the
following:
1.

2.

The purchase of personalized cards by COMPANY from an
Illinois printer which are subsequently resold or provided free-ofcharge and shipped directly by the Illinois printer to
COMPANY’S customers located outside the state of Illinois are
not subject to Illinois' Retailers' Occupation or Use tax.
Personalized cards purchased by COMPANY from an Illinois
printer which are subsequently resold by COMPANY to Illinois
customers are subject to Illinois Retailers’ Occupation Tax. An
Illinois Resale Certificate should be provided by COMPANY to
the Illinois printer. COMPANY should collect Illinois Retailers'
Occupation Tax, measured by the full cost charged by

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COMPANY to their customer (prepayment plus final payment),
at the time the cards are shipped by the Illinois printer.
Personalized cards purchased by COMPANY, from an Illinois
printer, which are subsequently delivered by the printer to
recipients located in Illinois who receive the cards free-of-charge
are subject to Illinois Use Tax. COMPANY should report Illinois
Use Tax, measured by the amount paid to the Illinois printer
(prepayment plus final payment), at the time the cards are
shipped to the Illinois recipients.
Personalized cards purchased by COMPANY from a printer
located outside of Illinois, which are subsequently delivered by
the printer to recipients located in Illinois who receive the cards
free-of-charge are not subject to Illinois tax.
Personalized cards purchased by COMPANY from a printer
located outside of Illinois, which are subsequently resold by
COMPANY to Illinois customers are subject to Illinois Retailers'
Occupation Tax, measured by the cost charged by COMPANY
to their customer (prepayment plus final payment), at the time
the cards are shipped by the non-Illinois printer.
Cards which are printed but not personalized and, therefore, not
usable are destroyed. These cards are not subject to Illinois tax.

3.

4.

5.

6.

Authorities in Support of Requested Ruling
Statute(s), Rule(s), and Court Opinion:
•
•
•
•
•

35 ILCS § 120/1
86 Ill. Adm. Code § 130.605
86 Ill. Adm. Code § 150.201
Illinois Private Letter Ruling, No. ST 87-0313-PLR, 05/ 05/ 1987
United Tech Corp v. Dep't of Revenue, 107 Ill. .App. 3d 1062,63
Ill. Dec. 604, 438 N.E.2d 535 (App. 1st Dist.1982)

Applicable Law
Sales of TPP shipped by the Seller at the Instruction of the Purchaser
to Out-of-State Recipients Are Not Subject to Illinois Tax
Per 35 ILCS §120/1, a "sale at retail" means any transfer of the
ownership of or title to tangible personal property to a purchaser, for
the purpose of use or consumption, and not for the purpose of resale
in any form as tangible personal property to the extent not first

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subjected to a use for which it was purchased, for a valuable
consideration. 1
The Retailers' Occupation Tax (ROT) applies to retail sales of property
located in Illinois at the time of sale and delivered in Illinois to the
2
purchaser. However, the tax does not apply to gross receipts from
sales in which the seller delivers the goods from a point in Illinois to a
point outside of Illinois.3 Per Ill. Admin. Code 130.605, tax does not
apply to "gross receipts from sales in which the seller, by carrier (when
the carrier is not also the purchaser) or by mail, under the terms of his
or her agreement with the purchaser, delivers the goods from a point
in this State to a point outside this State not to be returned to a point
within this State. The fact that the purchaser actually arranges for the
common carrier or pays the carrier that effects delivery does not
destroy the exemption." It is necessary to provide that the seller - not
the purchaser – is the consignor or shipper on the bill of lading.
Specifically,
"To establish that the gross receipts from any given sale are
exempt because the tangible personal property is delivered by
the seller from a point within this State to a point outside this State
under the terms of an agreement with the purchaser, the seller
will be required to retain in his or her records, to support
deductions taken on his or her tax returns proof that satisfies the
Department that there was an agreement and a bona fide
delivery outside this State of the property that is sold. The most
acceptable proof of this fact will be:
1)

If shipped by common carrier, a waybill or bill of lading
requiring delivery outside this State;

N
2)

if sent by mail, an authorized receipt from the United States
Post Office department for articles sent by registered mail,
parcel post, ordinary mail or otherwise, showing the name
of the addressee, the point outside Illinois to which the
property is mailed and the date of the mailing; if the receipt
does not comply with these requirements, other supporting
evidence will be required;

N
3)

if sent by seller's own transportation equipment, a trip sheet
signed by the person making delivery for the seller and

35 ILCS § 120/1
86 Ill. Admin. Code § 130.605(a)
3
86 Ill. Admin. Code § 130.605(c)(d)
1
2

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showing the name, address and signature of the person to
whom the goods were delivered outside this State; or, in lieu
thereof, an affidavit signed by the purchaser or his or her
representative, showing the name and address of the seller,
the name and address of the purchaser and the time and
place of the delivery outside Illinois by the seller; together
with other supporting data as required by Section 130.810
of this Part and by Section 7 of the Act."4
As outlined in the Statement of Facts above, the printer ships the
payment cards at the instruction of COMPANY, to recipients located
either within or outside of Illinois. While COMPANY reimburses the
printer for the costs of shipping, the printer coordinates the shipment
via carrier or mail.
The Department of Revenue previously supported this position in a
Private Letter Ruling.
In the facts presented for consideration,
advertising materials were mailed by an Illinois-based direct mail firm
to addressees located outside of Illinois. The Department, while
referencing the ambiguity of facts supporting the request, confirmed
that "If the printer hires the direct mail firm, the mail firm is an agent of
the printer and the subsequent direct mailings will be viewed as
shipments by the printer into interstate commerce. No tax is due in
this situation. If the client of the printer hires the mailing firm, the
mailing firm is an agent of the client and by taking possession of the
material in Illinois incurs an Illinois tax liability." 5
In our case,
COMPANY hires the printer who facilitates both the production of the
cards, and the shipment of the cards to COMPANY’S customers.
TPP Sold or Given Away to Illinois Recipients is subject to Illinois Tax.
Cards resold by COMPANY to Illinois customers
Per 35 ILCS § 120/1, a "sale at retail" includes "any transfer of
the ownership of or title to tangible personal property to a buyer
when the property may be used or consumed by another person to
whom the buyer transfers it without valuable consideration. 6 Further,
the Retailers' Occupation Tax (ROT) applies to retail sales of
property located in Illinois at the time of sale and delivered in Illinois
to the purchaser. 7
86 Ill. Admin. Code § 130.605(f)
Illinois Private Letter Ruling, No. ST 87-0313-PLR, 05/05/1987
6
35 ILCS § 120/1
7
86 Ill. Admin. Code § 130.605(a)
4
5

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Therefore, in those instances when COMPANY purchases cards from
a printer for subsequent resale to an Illinois customer, and the cards
are shipped directly to the Illinois recipient at the instruction of
COMPANY, COMPANY should collect and remit IL Retailer's
Occupation Tax measured by the sales price to their customer.
Cards received by Illinois customers free-of-charge
In those instances when COMPANY instructs a printer to ship TPP to
an IL recipient who receives the TPP free-of-charge, COMPANY
should report and remit IL use tax due on the sales price of the TPP
charged by the printer.
Taxability of customer prepayments made towards the purchase price
of TPP
Prepayments made by COMPANY’S customers
As established in United Tech. Corp v. Dep't of Revenue 8,
prepayments received without transfer of ownership or title are not
considered taxable gross receipts.
Initial payments made by
COMPANY’S customers to COMPANY do not result in a transfer of
title or ownership of the printed cards.
Until the cards are
personalized, the cards are unusable and unfinished. In some
instances, the unfinished cards are never personalized and are
ultimately destroyed. As a result, no transfer of title to the cards takes
place, thus no retail sale has occurred between COMPANY and their
customer.
In those instances where cards are personalized, a final payment is
made by COMPANY. The cards are then shipped by the printer per
the customer's instruction. At this time, a retail sale has occurred
whereby the title of the cards has transferred from COMPANY to the
customer.
In those instances where cards are personalized, a final payment is
made by COMPANY. The cards are then shipped by the printer per
the customer's instruction. At this time, a retail sale has occurred
whereby the title of the cards has transferred from COMPANY to the
customer.
8

United Tech Corp v. Dep’t of Revenue, 107 Ill. App. 3d 1062, 63 Ill. Dec. 604, 438 N.E.2d 535 (App. 1st Dist.
1982)

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In the event COMPANY issues a resale certificate to the printer for the
purchase of the cards, COMPANY is responsible for remitting Illinois
Retailers' Occupation Tax when the cards are resold to Illinois
customers. COMPANY is responsible for remitting Illinois Use Tax if
the cards are given away to Illinois recipients, at no charge to the
recipients.
Destruction of TPP does not constitute a "use"
Unfinished, unusable cards
86 Ill. Admin. Code § 150.201 defines "use" as "the exercise by any
person of any right of power over tangible personal property
incident to the ownership of that property.” Although title of the
cards transfers to COMPANY at the time the initial prepayment is
made to the printer, a true use of the property is not possible as the
cards are unfinished. The cards are not usable until they are
personalized.
Therefore, the destruction of the cards prior to
personalization does not constitute a “use” of the property subject
to Illinois Use Tax.
Explanation of Grounds for Requested Ruling
Per Illinois guidance:
1.
2.
3.
4.
Illinois

Cards that are resold or given away by COMPANY to customers
or recipients located outside of Illinois are not subject to Illinois
tax.
The resale of cards by COMPANY to customers located within
Illinois are subject to IL ROT at the time the cards are shipped by
the printer.
IL Use Tax is due by COMPANY when cards are given away to
Illinois recipients who receive the cards free-of-charge, at the
time the cards are shipped by the printer.
No tax is due on COMPANY’S purchase of the cards from an
printer when those cards remain unfinished and are ultimately
destroyed.

Authorities Contrary to Requested Ruling
Our review of the Illinois Statutes, case law, and guidance provided by
the Illinois Department of Revenue did not result in findings which are
contrary to the positions outlined in this request. Upon receiving any

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contradictory guidance from the Department of Revenue, we will
review the information accordingly.
Conclusion
Based upon the statutes, rules, and published rulings, COMPANY
incurs a tax liability in Illinois only in those instances where cards are
shipped to Illinois recipients. In those instances where cards are
shipped to a recipient located outside of Illinois, no Illinois tax liability
occurs. To the extent that unfinished cards are destroyed, no Illinois
tax liability occurs. COMPANY respectfully requests the Department
of Revenue's issuance of a private letter ruling in response to the
information provided, and in confirmation of the previously outlined
positions.
DEPARTMENT’S RESPONSE:
Retailer’s Occupation Tax
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. 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.
Service Occupation Tax
Retailers' Occupation Tax and Use Tax 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. 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

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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 are required to 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 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.
Multi-Service Transaction – Secondary Servicemen
Multi-service situations exist where a primary serviceman subcontracts work to a
secondary serviceman. See 86 Ill. Adm. Code 140.145. A primary serviceman
engages the services of a secondary serviceman in order to obtain part or all of the
products and services desired by the service customer. The point at which Service

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Occupation Tax or Use Tax will be incurred depends upon whether the primary and
secondary servicemen are registered or de minimis. In multi-service situations, a
primary serviceman’s cost price is determined either by the separately stated selling
price of the tangible personal property transferred from a secondary serviceman, or if
the secondary serviceman does not separately state the cost of goods, it is presumed
that the primary serviceman’s cost price is 50% of the secondary serviceman’s total
charge. 86 Ill. Adm. Code 140.301(a).
When both primary servicemen and secondary servicemen are registered,
primary servicemen provide secondary servicemen with a Certificate of Resale. A
primary serviceman would then incur Service Occupation Tax based upon the
separately stated selling price of the property or 50% of the bill to the service
customers. If the primary serviceman is registered and de minimis (that is, under the
35% threshold, or 75% for pharmacists and printers), he may choose to remit Service
Occupation Tax to the Department based upon his cost price of tangible personal
property purchased from the secondary serviceman. If the cost price of the tangible
personal property is not separately stated by the secondary serviceman, the cost price
will be deemed to be 50% of the total bill from the secondary serviceman. Upon selling
their product, such servicemen are required to collect the corresponding Service Use
Tax from their customers.
If an unregistered de minimis serviceman subcontracts service work to another
unregistered de minimis secondary serviceman, the primary serviceman does not incur
a Use Tax liability if the secondary serviceman (i) has paid or will pay Use Tax on his or
her cost price of any tangible personal property transferred to the primary serviceman
and (ii) certifies that fact in writing to the primary serviceman. This certification option is
only available in multi-service situations when both the primary and secondary
servicemen are unregistered and de minimis.
Transactions involving multiple servicemen work best if both the primary and
secondary servicemen are registered. This will enable both parties to utilize Certificates
of Resale. If the primary serviceman is registered and the secondary serviceman is not
registered, it is possible that tax will be incurred at more than one point during the
course of sale of a particular item. This will occur if the unregistered secondary
serviceman has paid Use Tax with respect to an item of tangible personal property, then
transfers that property to a primary serviceman who will, in turn, incur a Service
Occupation Tax liability when transferring the item to the service customer.
Jurisdictional Issues – Service Occupation Taxes
If the Illinois Service Occupation Tax on a transaction is being remitted to the
Department by the serviceman, the serviceman shall also pay any local service
occupation tax to the Department on the same transaction if such serviceman engages
in the business of making sales of service within a jurisdiction that has adopted a local

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service occupation tax. If a purchase order is accepted outside this State but the
tangible personal property which is sold incident to the sale of service is in the inventory
of a serviceman located within a home rule municipality at the time of its sale (or is
subsequently produced in the home rule municipality) then delivered in Illinois to the
service customer, the place where the property is located at the time of the sale (or
subsequent production in the municipality) will determine where the seller is engaged in
business for local service occupation tax purposes with respect to such sale. See, for
example, 86 Ill. Adm. Code 280.115.
Service Use Tax
The Service Use Tax is a privilege tax imposed on the privilege of using, in this
State, tangible personal property that is received anywhere as an incident to a purchase
of service from a serviceman. However, if the serviceman would not be taxable under
the Service Occupation Tax Act despite all elements of the sale of service occurring in
Illinois, then the tax imposed by the Service Use Tax Act does not apply to the use of
such property in this State. Any evidence that property was sold by any person for
delivery to a person residing in or engaged in business in this State shall be prima facie
evidence that such property was sold for use in this State. The rate of the Service Use
Tax is 6.25% of the serviceman's selling price of the tangible personal property
transferred by the serviceman as an incident to a sale of service. 86 Ill. Adm. Code
160.101. The Service Use Tax shall be based on the selling price of the tangible
personal property transferred incident to the sale of service if stated separately on the
invoice from the serviceman. If not stated separately, then the tax will be imposed on
50% of the entire billing from the serviceman. However, the Service Use Tax which is
collected by a de minimis serviceman who incurs Service Occupation Tax on his cost
price of tangible personal property transferred incident to service, as provided at 86 Ill.
Adm. Code 140.109, shall be based upon his cost price of tangible personal property
transferred incident to his or her sales of service. 86 Ill. Adm. Code 160.115.
Ruling
The Company is headquartered in Oakland, California and has an employee who
resides in Illinois. Because the Company has an employee in Illinois it is considered a
“serviceman maintaining a place of business in this State.” 35 ILCS 110/2. Every outof-State serviceman maintaining a place of business in this State must register and
collect Service Use Tax from service customers, unless such serviceman is authorized
to pay Use Tax as provided in 86 Ill. Adm. Code 140.108. 86 Ill. Adm. Code 160.130(c).
The Company contracts with its customers to provide personalized debit or
prepaid payment cards along with other services. Retailers’ Occupation Tax and Use
Tax do not apply to receipts from sales of personal services. The Company has
communicated to the Department that it qualifies as a de minimis serviceman and is not
registered with the Department. Accordingly, for purposes of responding to the rulings

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requested by the Company, the Department will treat the Company as an unregistered
de minimis serviceman.
The Company has request rulings on 6 scenarios.
1.

“The purchase of personalized cards by COMPANY from an
Illinois printer which are subsequently resold or provided free-ofcharge and shipped directly by the Illinois printer to
COMPANY’S customers located outside the state of Illinois are
not subject to Illinois' Retailers' Occupation or Use tax.”

The Company may claim the interstate commerce exemption for materials
shipped out of Illinois. Under the interstate commerce exemption, servicemen do
not incur Service Occupation Tax liability on property that they resell as an
incident to a sale of service under an agreement by which they are obligated to
make physical delivery of the goods from a point in Illinois to a point outside
Illinois, not to be returned to a point within Illinois, provided that such delivery is
actually made. 86 Ill. Adm. Code 140.501.
2.

“Personalized cards purchased by COMPANY from an Illinois
printer which are subsequently resold by COMPANY to Illinois
customers are subject to Illinois Retailers’ Occupation Tax. An
Illinois Resale Certificate should be provided by COMPANY to
the Illinois printer. COMPANY should collect Illinois Retailers'
Occupation Tax, measured by the full cost charged by
COMPANY to their customer (prepayment plus final payment),
at the time the cards are shipped by the Illinois printer.”

As an unregistered de minimis serviceman, the Company should pay Use Tax to
the Illinois printer based on the cost price of the cards. Except as provided in Section
140.145(a), when the Company purchases cards from the printer, the Company shall
determine its cost price either by using the separately stated selling price of cards set
forth on the invoice from the printer or, if no selling price is separately stated, 50% of the
total invoice including labor and service charges, in the absence of proof (e.g., printers
purchase invoices showing his cost price) of the consideration paid by the printer for the
purchase of the cards. 86 Ill. Adm. Code 140.145(f)
.
If the printer is not registered to collect and remit tax, the Company must register,
self-assess, and remit Use Tax to the Department. The Company is considered to be
the end-user of the cards transferred incident to service. Consequently, the Company is
not authorized to collect a "tax" from its customers. See 86 Ill. Adm. Code 140.108.
If the printer is an unregistered de minimis serviceman, the Company does not
incur a Use Tax liability if the Illinois printer (i) has paid or will pay Use Tax on his or her

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cost price of any tangible personal property transferred to the Company and (ii) certifies
that fact in writing to the Company.
3.

“Personalized cards purchased by COMPANY, from an Illinois
printer, which are subsequently delivered by the printer to
recipients located in Illinois who receive the cards free-of-charge
are subject to Illinois Use Tax. COMPANY should report Illinois
Use Tax, measured by the amount paid to the Illinois printer
(prepayment plus final payment), at the time the cards are
shipped to the Illinois recipients.”

The Company should pay Use Tax to the printer as explained in the previous
answer. The Company has communicated to the Department that the expression “free
of charge” means that the Company does not separately state the cost of the cards on
the invoice to the customer. This does not change the Department’s analysis.
4.

Personalized cards purchased by COMPANY from a printer
located outside of Illinois, which are subsequently delivered by
the printer to recipients located in Illinois who receive the cards
free-of-charge are not subject to Illinois tax.

When the Company purchases cards from an out-of-state printer, has the out-ofstate printer personalize the cards, and has the out-of-state printer ship the cards to
Illinois recipients, the Company incurs Use Tax liability. The Company must self-assess
the tax and remit it directly to the Department of Revenue. The Company would receive
credit against its Illinois Use Tax obligations for taxes properly due and paid in another
state. See 86 Ill. Adm. Code 150.310(a)(3).
5.

“Personalized cards purchased by COMPANY from a printer
located outside of Illinois, which are subsequently resold by
COMPANY to Illinois customers are subject to Illinois Retailers'
Occupation Tax, measured by the cost charged by COMPANY
to their customer (prepayment plus final payment), at the time
the cards are shipped by the non-Illinois printer.”

See the answer to ruling request 4. It is the Department’s understanding in this
scenario the cost for the cards are separately stated on the invoice to its customer. This
does not change the Department’s analysis.
6.

Cards which are printed but not personalized and, therefore, not
usable are destroyed. These cards are not subject to Illinois tax.

If the cards are printed and destroyed outside of Illinois, the Company does not
incur any Illinois tax liability. If the cards are printed and destroyed in Illinois, the

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Company incurs Use Tax on the fair market value of the cards on the date the cards are
destroyed. However, if the Company paid Use Tax to an Illinois supplier at the time the
cards were purchased, the Company would not incur any Use Tax liability when the
cards are destroyed. If the cards were purchased out-of-State and destroyed in Illinois,
the Company would receive credit for any tax properly due and paid in another state.
The factual representations upon which this ruling is based are subject to review
by the Department during the course of any audit, investigation, or hearing and this
ruling shall bind the Department only if the factual representations recited in this ruling
are correct and complete. This Private Letter Ruling is revoked and will cease to bind
the Department 10 years after the date of this letter under the provisions of 2 Ill. Adm.
Code 1200.110(e) or earlier if there is a pertinent change in statutory law, case law,
rules or in the factual representations recited in this ruling.
I hope this information is helpful. 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
Chairman – Private Letter Ruling Committee
RSW:rkn