When a serviceman buys a specimen-collection kit from an out-of-state, unregistered supplier and uses it (rather than transferring it to the customer) to provide a non-taxable service in Illinois, does the serviceman owe Illinois Use Tax on the kit?

Plain-English summary

An online provider of ancestral/health-history reports (generated from customer saliva samples collected with a mailed specimen kit) asked the Illinois Department of Revenue how its sales and the kits it uses should be taxed. The Department declined to issue a binding Private Letter Ruling and instead issued this General Information Letter.

The Department explained that Illinois' Retailers' Occupation Tax and Use Tax apply to sales of tangible personal property, not to sales of services, and that the Service Occupation Tax and Service Use Tax apply only when tangible personal property is transferred to the customer incident to a service. If a transaction involves no transfer of tangible personal property to the customer, none of those taxes apply.

But there's a separate wrinkle: if the business (the "serviceman") buys supplies, such as a specimen-collection kit, from an unregistered out-of-state supplier and uses or consumes those supplies itself in Illinois (rather than transferring them to the customer), the serviceman owes Use Tax on that property, self-assessed and remitted directly to the Department. Credit is allowed for any tax properly paid to another state on the same property.

What this means for you

Servicemen and service businesses using supplies from out-of-state vendors

If you provide a non-taxable service in Illinois but use tangible personal property (kits, materials, equipment) in the course of providing that service — without transferring ownership of it to the customer — and you bought that property from an unregistered out-of-state supplier, you must self-assess Illinois Use Tax on your cost of that property and remit it to the Department, even though no sales tax was charged at purchase.

Businesses that ship kits or supplies into Illinois

Registering with an out-of-state supplier's home state, or paying that state's tax at the point of shipment, doesn't excuse the Illinois Use Tax obligation. However, if tax was properly due and paid to another state on the same property, you can credit that amount against what you owe Illinois.

Accountants and tax professionals advising service-based clients

The key distinction is whether tangible personal property is transferred to the customer (potentially triggering Service Occupation/Service Use Tax) versus retained and consumed by the business itself (triggering self-assessed Use Tax under 86 Ill. Adm. Code 140.126(c)). Also watch the tax rate: general merchandise is taxed at 6.25%, while food, drugs, and medical appliances get the reduced 1% rate — but ordinary supplies like cotton swabs, and items that don't meet the "medical appliance" definition, do not qualify for that reduced rate.

Common questions

Q: Does Illinois charge sales tax on the DNA-analysis/report service itself?
A: No. Illinois' Retailers' Occupation Tax and Use Tax apply to sales of tangible personal property, not services. If no tangible personal property is transferred to the customer as part of the transaction, the serviceman generally is not subject to Retailers' Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax on that service.

Q: The company doesn't transfer the specimen kit to the customer's ownership in a taxable sale — so is the kit tax-free?
A: Not necessarily. If the serviceman purchased the kit at retail from an unregistered, out-of-state supplier and uses or consumes it in Illinois (rather than transferring it to the customer), the serviceman must self-assess Illinois Use Tax on the kit and remit it to the Department.

Q: What Use Tax rate applies to the kits?
A: The general Use Tax rate is 6.25%. A reduced 1% rate applies only to food, drugs, and medical appliances. Ordinary supplies (the ruling gives cotton swabs as an example) do not qualify for the reduced rate, and a specimen-testing kit that doesn't meet the definition of a medical appliance would not qualify either.

Q: The company already paid tax to another state when the kit was shipped from its distribution center there. Does it still owe Illinois Use Tax?
A: The Department confirmed that if tax was properly due and paid to another state on the property, the taxpayer may credit that amount against its Illinois Use Tax liability, under 86 Ill. Adm. Code 150.310(a)(3).

Q: Why did the Department issue a GIL instead of a binding Private Letter Ruling?
A: The Department determined it would decline to issue a Private Letter Ruling in response to this request and instead issued this General Information Letter directing the taxpayer to the relevant regulations.

Citations and references

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax on retail sales of tangible personal property)
• 86 Ill. Adm. Code 150.101 (Use Tax on the privilege of using tangible personal property in Illinois)
• 86 Ill. Adm. Code 140.101; 160.101 (Service Occupation Tax Act and Service Use Tax Act, imposed on transfers of tangible personal property incident to a sale of service)
• 86 Ill. Adm. Code 140.126(c) (self-assessment of Use Tax by a serviceman on property bought from an unregistered out-of-state supplier and used/consumed rather than transferred to customers)
• 86 Ill. Adm. Code 140.126 (Use Tax rate: 6.25% general merchandise, 1% food/drugs/medical appliances)
• 86 Ill. Adm. Code 130.311 (supplies such as cotton swabs do not qualify for the reduced 1% rate)
• 86 Ill. Adm. Code 150.310(a)(3) (credit for tax properly paid to another state)

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/st22-0024-gil.pdf

Original ruling text

ST-22-0024-GIL 11/04/2022 USE TAX:
When a serviceman purchases at retail from an unregistered, out-of-State
supplier tangible personal property that the serviceman does not transfer to
service customers, but instead uses or consumes in Illinois, the serviceman must
self-assess Use Tax on that tangible personal property and remit Use Tax to the
Department, with credit allowed for any tax properly due and paid to another
state. See 86 Ill. Adm. Code 140.126(c) and 86 Ill. Adm. 150.310(a)(3). (This is
a GIL.)
November 4, 2022

REPRESENATIVE’S NAME/ REPRESENTATIVE’S ADDRESS
Dear Ms. XXX:
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 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). Further,
the Department’s regulations regarding Private Letter Rulings provide that “[i]f there is
case law or there are regulations dispositive of the subject of the request, the
Department will decline to issue a letter ruling on the subject." 2 Ill. Adm. Code
1200.110(a)(3)(D). The Department recently met and determined that 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. In your
letter you have stated and made inquiry as follows:

Re:

COMPANY

-##########-

ADDRESS

COMPANY/ REPRESENTATIVE’S NAME
Page 2
November 4, 2022
To Whom it May Concern:
We are requesting a letter ruling on behalf of COMPANY (“COMPANY”,
“taxpayer”, or “company”) a STATE1-based taxpayer with a distribution
center in STATE2 and specimen-processing laboratory in STATE3. The
company’s customers are located all over the United States and abroad.
COMPANY has been selling its services to Illinois customers since 20##
and has never been contacted by the state for this or any other tax matter.
The state has not issued an opinion on this matter previously, nor has the
taxpayer solicited an opinion on the matter from the state.
COMPANY is an online provider of ancestral and health history reports to
individual customers. The reports are generated from the company’s
analysis of the customers’ DNA (saliva specimens). The customers
collect their own saliva using a kit which is mailed to them by the company
from a distribution center located in STATE2. Once the customer has
used the kit, they mail it from their home to a company-owned lab in
STATE3 where the DNA specimens are processed. The customers then
access their individualized, personal reports through the company’s
website.
We would like some assistance in confirming how Illinois will treat the
company’s sales to its customers for sales and use tax purposes. Please
help us address the following:
1.
Where is the service to the customers deemed to be
provided?
2.
If the service is deemed to be provided in Illinois, how will
the state categorize the service being provided to the
taxpayer’s customers?
3.
Given the use of TPP (the specimen-collecting kit) in
performance of the service, would the state consider the
non-taxable service “bundled” with TPP to be taxable?
4.
Are the kits used by the customers to collect their saliva
samples subject to use tax in Illinois?
Our own analysis is as follows, and we are asking the state to provide
feedback and additional guidance:
1.

To date, the company has considered the situs of the sale to
be the ship-to location of the customer (the address to where
the kits are initially mailed), and presumably the location
from which the customer will access the company’s website
to view their individualized reports. Given that the analysis

COMPANY/ REPRESENTATIVE’S NAME
Page 3
November 4, 2022
from which the reports are generated is completed in
STATE3, would the Illinois Department of Revenue consider
the service to have been provided in STATE3 rather than at
the customer’s home address?
2.

The DNA analysis and provision of ancestral/health history
reports are services not expressly subject to tax in Illinois,
and therefore, this service is not taxable in the state.
a.

Illinois Dept. of Revenue General Information Letter
No. ST07-0125-GIL, 08/16/2007 – Illinois does not
generally impose sales tax on the provision of
services so long as no tangible goods are provided as
part of the service.

b.

Illinois Dept. of Revenue Private Letter Ruling ST 120007-PLR 08/17/2012 Use Tax – Illinois issued a
Private Letter Ruling to a company in the business of
selling non-familial breast cancer screening kits to
individuals and physicians in the state, and
determined sales tax does not apply to the
testing/diagnostic services (which are provide by a lab
outside of IL), and stated use tax on the kits was a
“grey area” due to the nature of the services being
provided.

3.

The cost of the kit (less than $1 USD) relative to the cost of
the service (generally, $99 USD) is insignificant, and the use
of the kit is integral to the provision of the service. Other
states, in auditing the taxpayer, have determined the kit is
not subject to sales tax, but is rather consumed in the
provision of a non-taxable service.

4.

Use tax does not apply in Illinois to the kits used in collecting
the saliva samples because use tax is paid to STATE2 when
the kits are shipped to customers.
a.

STATE2 has a hybrid origin/destination scheme
where sales and use tax are concerned.

b.

Because the service being provided by the company
is non-taxable in most states, sales tax will not be
collected from customers based at their location,
therefore, the kits consumed in providing the service
are subject to use tax.

COMPANY/ REPRESENTATIVE’S NAME
Page 4
November 4, 2022
c.

The company has physical nexus in STATE2 because
it has inventory and a distribution warehouse located
in the state, and therefore, STATE2 considers the kits
to be subject to use tax in the state (the point of
origin) when they are shipped to customers.

d.

At most, the kits would be subject to use tax in Illinois,
with credit deducted for the use tax paid in STATE2.
The cost of the kits, however, is de minimis (less than
$1 USD), and therefore, the differential use tax would
be immaterial to Illinois.

e.

IL Rev Rule 140.126 – in the event the kits are
subject to use tax, the reduced 1% rate would apply.

We appreciate your assistance with these questions, appreciate the
Department’s discretion when publishing its response to this inquiry, and
look forward to the Departments response and findings.
DEPARTMENT’S RESPONSE:
The Retailers' Occupation Tax Act imposes a tax upon persons engaged in this
State in the business of selling tangible personal property at retail 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.
Retailers' Occupation and Use Taxes do not apply to sales of service. The
Service Occupation Tax Act and Service Use Tax Act are imposed on the transfer of
tangible personal property incident to sales of service. 86 Ill. Adm. Code 140.101 and
160.101. If a transaction does not involve the transfer of any tangible personal property
to the customer, then the taxpayer generally would not be subject to Retailers’
Occupation Tax, Use Tax, Service Occupation Tax, or Service Use Tax. However, if a
serviceman purchases at retail from an unregistered, out-of-State supplier tangible
personal property that the serviceman does not transfer to service customers, but
instead use or consumes in Illinois, the serviceman must self-assess Use Tax on that
tangible personal property and remit Use Tax to the Department. See 86 Ill. Adm. Code
140.126(c).
If a business is providing a service to its customers in Illinois, it would be
considered a serviceman. If this serviceman does not transfer any tangible personal
property incident to that service, then no Service Occupation Tax would apply to the

COMPANY/ REPRESENTATIVE’S NAME
Page 5
November 4, 2022
sale of service. However, if a business provides tangible personal property, such as a
specimen collection kit, to its service customers in Illinois to use in its provision of
service, then that business itself is using tangible personal property in Illinois and would
owe Use Tax on its cost price of the tangible personal property.
The Use Tax rate is 6.25% for general merchandise and 1% for food, drugs, and
medical appliances. 86 Ill. Adm. Code 140.126. Supplies, such as cotton swabs, do
not qualify for the reduced 1% rate. See 86 Ill. Adm. Code 130.311. If an item, such as
a specimen testing kit does not meet the requirements for a medical appliance, it would
not qualify for the reduced tax rate of 1%. If any tax is properly due and paid in another
state on tangible personal property brought into Illinois, then the taxpayer may credit the
amount of that tax paid to the other state in determining its Illinois Use Tax liability. See
86 Ill. Adm. Code 150.310(a)(3).
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,

Kimberly Rossini
Associate Counsel
KR:dlb