Does an online reseller have to charge and collect Illinois sales tax on a "buyer's premium" it adds on top of the sale price of each item?

Plain-English summary

An online reseller wrote to the Illinois Department of Revenue asking about the sales tax treatment of a "buyer's premium" it charges customers. The taxpayer explained that it buys overstock, returned, and discontinued merchandise from companies and resells the items through a software company on the internet. On each sale it charges both sales tax and a "buyer's premium" -- an additional percentage of the sale price, described in the letter as a contribution to the costs of the administrative process, disclosed in the seller's terms and conditions that buyers must accept before purchasing. The taxpayer said it already charges sales tax on the buyer's premium amount, but asked the Department to confirm whether that was required, after getting inconsistent answers from different Department offices.

The Department answered with a General Information Letter (GIL) rather than the binding Private Letter Ruling process, since a GIL simply directs a taxpayer to the relevant law rather than resolving the taxpayer's specific facts. The Department explained that the Retailers' Occupation Tax (commonly called "sales tax" in Illinois, together with the complementary Use Tax) is measured by the seller's "gross receipts" from retail sales -- defined as all the consideration actually received by the seller, except traded-in tangible personal property. "Selling price" likewise means the consideration for a sale valued in money, however received, including cash, credits, property, and services. Critically, the Department pointed to 86 Ill. Adm. Code 130.410: no deductions are allowed from gross receipts or selling price for the seller's cost of property sold, cost of materials, labor or service costs, idle time charges, incoming freight or transportation costs, overhead, processing charges, clerk hire or salesmen's commissions, interest paid by the seller, or any other expense whatsoever -- and this holds true "even if separately stated on the bill to the customer."

Applying that rule, a buyer's premium -- being an amount the seller charges to cover its own administrative/processing costs -- is part of the retailer's taxable gross receipts, so the seller must charge and pay sales tax on it, exactly as the taxpayer had already been doing. The Department also flagged, based on the taxpayer's description of selling "through a software company on the internet," that if that platform meets either remittance threshold in 86 Ill. Adm. Code 131.135(a), it would be a "marketplace facilitator" -- treated as the retailer responsible for collecting and remitting all applicable state and local retailers' occupation taxes on sales made over the marketplace, both its own sales and sales made on behalf of marketplace sellers like the taxpayer.

What this means for you

Online resellers and auction-style sellers

If you charge customers an extra fee on top of the item price -- a buyer's premium, handling fee, processing fee, or similarly labeled surcharge that covers your own costs of doing business -- this GIL confirms Illinois treats that amount as part of your taxable gross receipts. It does not matter that the fee is broken out as its own line item on the invoice or described in your terms and conditions as a separate charge; 86 Ill. Adm. Code 130.410 bars deducting costs of doing business from gross receipts regardless of how they are billed. Charge and remit sales tax on the full amount the customer pays, including the premium.

Sellers using third-party marketplace platforms

If you sell "through a software company on the internet" (an online marketplace or platform), check whether that platform qualifies as a "marketplace facilitator" under 86 Ill. Adm. Code 131.135(a). If it meets either of the tax remittance thresholds there, the platform -- not you -- becomes responsible for collecting and remitting Illinois retailers' occupation tax on sales made through it, covering both the platform's own sales and sales made on behalf of sellers like you. Confirm with your platform which party is actually handling tax collection so you don't double-collect or under-collect.

Accountants and tax professionals

This GIL is a useful, easy citation for the general rule that a retailer cannot strip out its own administrative or handling costs from taxable gross receipts by billing them as a separate line item -- the controlling authority is 86 Ill. Adm. Code 130.410, with the underlying "gross receipts" and "selling price" definitions coming from 86 Ill. Adm. Code 130.401 and 35 ILCS 120/1. Remember this is a GIL, not a PLR: it is not a statement of Department policy and is not binding on the Department, even as to the requesting taxpayer, so a client who needs a binding answer on its own specific facts should pursue a PLR under 2 Ill. Adm. Code 1200.110 instead.

Common questions

Q: Is a "buyer's premium" subject to Illinois sales tax?
A: Yes. The Department confirmed that costs of doing business -- which is how it characterized the buyer's premium described in the request -- are an element of the retailer's gross receipts subject to tax, even if separately stated on the bill to the customer. See 86 Ill. Adm. Code 130.410.

Q: Does it matter that the buyer's premium is listed as a separate charge from the item's sale price?
A: No. 86 Ill. Adm. Code 130.410 specifically states that no deductions from gross receipts are allowed for costs of doing business "even if separately stated on the bill to the customer."

Q: What counts as "gross receipts" for Illinois sales tax purposes?
A: Per 86 Ill. Adm. Code 130.401, gross receipts means all the consideration actually received by the seller, except traded-in tangible personal property. "Selling price" means the consideration for a sale valued in money, whether received in money or otherwise (cash, credits, property, or services), per 35 ILCS 120/1.

Q: The taxpayer sells through an online software platform -- does that change who owes the tax?
A: It can. The Department noted that if the platform meets either tax remittance threshold in 86 Ill. Adm. Code 131.135(a), it is treated as a "marketplace facilitator" and becomes the retailer responsible for collecting and remitting Illinois retailers' occupation tax on marketplace sales, including sales made on behalf of sellers using the platform.

Q: Can this taxpayer, or anyone else, rely on this GIL as binding on the Department?
A: No. A GIL is not a statement of Department policy and is not binding on the Department. It only directs the taxpayer to relevant regulations. A taxpayer who wants a binding answer specific to its own facts must request a Private Letter Ruling under 2 Ill. Adm. Code 1200.110.

Citations and references

Statutes:

• 35 ILCS 120/1 (Retailers' Occupation Tax Act, definition of "selling price")

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax and Use Tax, imposition of tax)
• 86 Ill. Adm. Code 130.401 (definition of "gross receipts")
• 86 Ill. Adm. Code 130.410 (no deductions from gross receipts for costs of doing business, even if separately stated)
• 86 Ill. Adm. Code 150.101 (Use Tax, imposition of tax)
• 86 Ill. Adm. Code 131.130, 131.135, 131.140, 131.145 (marketplace facilitators)
• 2 Ill. Adm. Code 1200.110 (Private Letter Ruling procedure)
• 2 Ill. Adm. Code 1200.120 (General Information Letter procedure)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2023.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2023/st23-0023-gil.pdf

Original ruling text

ST-23-0023-GIL 07/21/2023 GROSS RECEIPTS
Costs of doing business are an element of the retailer's gross receipts subject to
tax even if separately stated on the bill to the customer. See 86 Ill. Adm. Code
130.410. (This is a GIL.)
July 21, 2023
NAME
ADDRESS
Dear NAME:
This letter is in response to your letter dated May 9, 2023, 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 recently started an online sales company. I have spoken with several
staff members from the Illinois Department of Revenue in the Springfield
and Fairview Heights offices. I am unable to get a consistent answer to my
question; therefore, I was referred to write a letter to your department for a
legal answer.
I buy overstock, returned, and discontinued merchandise from companies
and resell the items through a software company on the internet. I charge
sales tax and a "buyer's premium" for each item.
A buyer's premium is a charge in addition to the sale price of an item. The
buyer is required to pay both the sale price and a percentage of that price
called a buyer's premium. Essentially, a "buyer's premium" is a
contribution to the costs of the administrative process. The amount of the
buyer's premium is stated in my sale terms and conditions and buyers
have to review and accept the terms and conditions prior to purchasing
merchandise from my website.

COMPANY/ NAME
Page 2
July 17, 2023
My question is: Do I need to charge and pay sales tax on the buyer's
premium amount? I currently charge sales tax on the buyer's premium.
Please clarify if I am supposed to charge and pay sales tax on the buyer's
premium.
If you have any questions or concerns, please feel free to contact me at
PHONE # or by email at E-MAIL
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 Tax is measured by the seller's gross receipts from such
sales made in the course of such business. See 86 Ill. Adm. Code 130.101. "Gross
receipts" means all the consideration actually received by the seller, except traded-in
tangible personal property. See 86 Ill. Adm. Code 130.401. The term “Selling price”
means the consideration for a sale valued in money whether received in money or
otherwise, including cash, credits, property, and services. 35 ILCS 120/1. In computing
Retailers' Occupation Tax liability, no deductions shall be made by a taxpayer from
gross receipts or selling prices on account of the cost of property sold, the cost of
materials used, labor or service costs, idle time charges, incoming freight or
transportation costs, overhead costs, processing charges, clerk hire or salesmen's
commissions, interest paid by the seller, or any other expenses whatsoever. Id. Costs
of doing business are an element of the retailer's gross receipts subject to tax even if
separately stated on the bill to the customer. See 86 Ill. Adm. Code 130.410.
We note from a description of your business that you sell products “through a
software company on the internet”. Please be advised that beginning on January 1,
2021, certain third-party marketplace platforms (“marketplace facilitator”) that meet
either of the tax remittance thresholds in 86 Ill. Adm. Code 131.135(a), are considered a
retailer engaged in the occupation of selling at retail in Illinois and are liable for all
applicable State and local retailers' occupation taxes administered by the Department
on all sales to Illinois purchasers made over the marketplace. This would include the
marketplace facilitator’s own sales and sales made over the marketplace on behalf of
marketplace sellers. (For further information on the application of the Act to
marketplace facilitators, see 86 Ill. Adm. Code 131.130, 131.135, 131.140, and
131.145.)

COMPANY/ NAME
Page 3
July 17, 2023
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,
Thomas Grudichak
Associate Counsel
TG:dlb