If a company manufactures signs, hires a third party to install them, and bills its dealers for the supply, freight, and installation, does it owe Illinois Retailers' Occupation (sales) Tax, Use Tax, or Service Occupation Tax on the sign -- and does the answer change once the sign is bolted to a concrete foundation?

Plain-English summary

A sign manufacturer wrote to the Illinois Department of Revenue asking for a Private Letter Ruling about a free-standing sign product it makes, installs (through a third-party installer), and bills to its dealers for supply, freight, and install. The structure "stands proud of the main building" and is installed on a concrete foundation using a series of anchor bolts. The company asked three things: (1) whether the product, once bolted to a foundation, should be treated as real property rather than tangible personal property for Sales & Use Tax purposes; (2) what State and local sales/use tax consequences apply if the product is treated as tangible personal property; and (3) what consequences apply if it is treated as real estate.

Because the inquiry asked the Department to apply the law to the company's specific facts, it would normally call for a binding PLR, but the Department responded with a GIL instead -- a lower-tier letter that lays out the general legal framework without resolving the taxpayer's particular situation.

The Department's response explains that Illinois' "sales tax" is really a combination of taxes: the Retailers' Occupation Tax (State and, where applicable, local occupation tax on sellers of tangible personal property, 86 Ill. Adm. Code 130.101 and 270.115) and the Use Tax (on the privilege of using tangible personal property in Illinois, 86 Ill. Adm. Code 150.101), with sellers typically passing the 6.25% Use Tax through to customers. For signs specifically, the Department distinguishes two situations under 86 Ill. Adm. Code 130.2155: a sign with "commercial value" -- meaning value to persons other than the purchaser, such as a sign that just spells out generic words like "real estate," "insurance," or "hamburgers" rather than the purchaser's own name or brand -- triggers Retailers' Occupation Tax liability on the seller when sold, even if custom-made to order, and the installation charge is also taxed unless it is separately stated in the agreement (86 Ill. Adm. Code 130.450). By contrast, a sign built to special order that is so specialized it would have no commercial value to anyone but that customer falls instead under the Service Occupation Tax Act (86 Ill. Adm. Code 140.101), and the sign vendor is treated as a "serviceman" rather than a retailer.

The Department then addresses the construction-contractor question directly: when a sign is permanently affixed to real estate, the tax consequences that apply to construction contractors take over (86 Ill. Adm. Code 130.1940 and 130.2075). Under Illinois law, a person who takes tangible personal property off the market and converts it into real estate is a construction contractor and the legal end-user of that property. That contractor owes Illinois Use Tax and local Retailers' Occupation Tax reimbursement when it buys the property from a registered Illinois supplier that collects the tax; if the supplier didn't collect the tax, the contractor must self-assess and remit Use Tax based on the property's cost price. The Department lists examples of "permanently affixed" from 86 Ill. Adm. Code 130.2155(d)(2): a sign bolted or otherwise permanently affixed to a building or hardwired into its general wiring system; a sign affixed to a permanent concrete foundation built for it (or hardwired into an electrical system); and a sign affixed to a pole placed in the ground.

The letter does not go further and tell the requesting company which category its specific product falls into -- that fact-bound determination is exactly what a GIL does not resolve.

What this means for you

Sign manufacturers, sellers, and installers

Whether you owe Retailers' Occupation Tax or Service Occupation Tax on a sign sale turns on "commercial value": if the sign's message would be useful or valuable to buyers generally (generic wording, not the customer's own name/brand, not otherwise individualized), you're a retailer and owe Retailers' Occupation Tax on the sale -- and on the installation charge too, unless you separately state that charge in your agreement. If the sign is so customized it has no value to anyone but that one customer, you're instead a "serviceman" under the Service Occupation Tax Act. Either way, if the sign ends up permanently affixed to real estate (bolted to a building or a poured foundation, hardwired into wiring, or set on a pole in the ground), the analysis shifts again: whoever converts the sign from tangible personal property into real estate is treated as a construction contractor and becomes the legal end-user, owing Use Tax and local Retailers' Occupation Tax reimbursement on the property's cost rather than the sale being taxed as a straightforward retail transaction.

Businesses that buy and install signs (or hire installers)

If you are the dealer or end customer having a sign installed, check whether your invoice separately states the installation charge -- that affects whether the installation itself is taxed. Also check whether the installation permanently affixes the sign to real estate under the 130.2155(d)(2) examples (bolted/hardwired to the building, mounted on a poured concrete foundation, or set on a pole in the ground); if so, the person converting the property into real estate (often the installer/contractor) is on the hook for Use Tax on the property's cost, which can affect how the transaction should be priced and invoiced.

Accountants and tax professionals

This GIL is a useful map of which regulation governs which fact pattern (130.2155 for the commercial-value/no-commercial-value split, 130.450 for installation-charge treatment, 130.1940 and 130.2075 for construction-contractor treatment) but it does not resolve the taxpayer's own three questions -- whether its particular sign product is real property or tangible personal property, and which of the resulting tax regimes applies to it. A client with a materially similar fact pattern cannot rely on this letter for protection and would need its own PLR under 2 Ill. Adm. Code 1200.110 for a binding answer.

Common questions

Q: Does a sign automatically become "real property" once it's bolted down?
A: The GIL doesn't make that a fixed rule for tax-classification purposes generally, but it does say that once a sign is "permanently affixed to real estate" -- with examples including being bolted or hardwired to a building, affixed to a poured concrete foundation, or mounted on a pole placed in the ground -- the tax consequences that apply to construction contractors apply, per 86 Ill. Adm. Code 130.1940, 130.2075, and 130.2155(d)(2).

Q: What's the difference between a sign with "commercial value" and one without it?
A: A sign has commercial value if it would be valuable to purchasers other than the one who ordered it -- for example, a stock sign reading "real estate," "insurance," or "hamburgers" that doesn't spell out the purchaser's own name or brand. Selling such a sign triggers Retailers' Occupation Tax even if it was custom-made to order. A sign so specialized that it has no value to anyone but that particular customer instead falls under the Service Occupation Tax Act, and the seller is treated as a serviceman rather than a retailer.

Q: Is the installation charge for a sign taxed along with the sign itself?
A: When the sign carries commercial value and Retailers' Occupation Tax applies, yes -- the installation charge is also subject to Retailers' Occupation Tax unless there is a separate agreement stating the installation charge separately (86 Ill. Adm. Code 130.450).

Q: Who owes tax when a sign is converted into real estate by a construction contractor?
A: The construction contractor -- the person who takes the tangible personal property off the market and installs it as real estate -- is treated as the legal end-user. That contractor owes Illinois Use Tax and local Retailers' Occupation Tax reimbursement when purchasing the property from a registered Illinois supplier that collects the tax; if the supplier didn't collect it, the contractor must self-assess and remit Use Tax based on the property's cost price.

Q: Did the Department answer whether this particular company's sign product is real property or tangible personal property?
A: No. The company asked for a PLR resolving exactly that question for its product, but the Department issued a GIL instead, which lays out the general framework (commercial value, installation-charge rules, and construction-contractor rules) without applying it to the company's specific product. A binding, fact-specific answer would require a PLR under 2 Ill. Adm. Code 1200.110.

Citations and references

Regulations:

• 86 Ill. Adm. Code 130.101 (Retailers' Occupation Tax imposed on sellers of tangible personal property)
• 86 Ill. Adm. Code 270.115 (local occupation tax rate keyed to location of selling activity)
• 86 Ill. Adm. Code 150.101 (Use Tax on tangible personal property used in Illinois)
• 86 Ill. Adm. Code 130.2155 (vendors of signs; commercial-value test; examples of permanent affixation at 130.2155(d)(2))
• 86 Ill. Adm. Code 130.450 (installation charges)
• 86 Ill. Adm. Code 140.101 (Service Occupation Tax Act; servicemen)
• 86 Ill. Adm. Code 130.1940 and 130.2075 (construction contractors)
• 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/st23-0024-gil.pdf

Original ruling text

ST-23-0024-GIL 07/27/2023 SIGNS/CONSTRUCTION CONTRACTORS
When signs are permanently affixed to real estate, the tax consequences
attributable to construction contractors apply. (86 Ill. Adm. Code 130.2155; 86 Ill.
Adm. Code 130.1940) (This is a GIL.)
July 27, 2023

NAME
COMPANY
ADDRESS
COUNTRY
Dear NAME:
This letter is in response to your letter dated May 22, 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:
Could you please forward me a private letter ruling on whether ‘l.
PRODUCT would be considered real property or personal tangible
property and 2. Clarification of how taxes are to be applied.
The structure is free standing and stands proud of the main building. It is
installed to a concrete foundation on a series of anchor bolts.
I have attached artwork and technical drawings demonstrating how this
PRODUCT are manufactured and installed, that may help with the
understanding of what the PRODUCT are and whether they should be
considered real property or personal tangible property.

COMPANY/ NAME
Page 2
July 27, 2023
COMPANY is manufacturing this PRODUCT and hiring
3rd party to
install them for us. We are then invoicing the dealers directly for the
supply, freight and install.
Issues:
1.
Whether PRODUCT bolted to a foundation retain its
character as “tangible personal property” embedded in the ground
should be constitute “real property for Sales & Use Tax purposes?
2.
What are the State and local sales & use tax consequences
of the sale, installation, and repair of the “PRODUCT” that qualifies
as tangible personal property to COMPANY and its customers?
3.
What are the State and local sales & use tax consequences
of the sale, installation, and repair of “PRODUCT” that qualifies as
real estate to COMPANY and its customer?
Should you require further clarification do not hesitate to contact
me.
DEPARTMENT’S RESPONSE:
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged
in this State in the business of selling tangible personal property to purchasers for use
or consumption, See 86 Ill. Adm. Code 130.101. In addition to the State occupation tax,
some jurisdictions are allowed to impose local occupation taxes which the Department
collects in conjunction with the State occupation tax. Generally, the local occupation tax
rate is determined based on the location at which a retailer’s selling activities take place.
See 86 Ill. Adm. Code 270.115. In addition to the State and local occupation taxes,
there is also a Use Tax which is imposed on the privilege of using in Illinois, 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 the “sales tax” in
Illinois. Although retailers owe the State and local occupation taxes, they are authorized
to reimburse themselves for this liability by collecting the entire tax amount from their
customers which includes the 6.25% Use Tax.
A person who sells signs that have commercial value (i.e., value to persons other
than the purchasers) incurs Retailers’ Occupation Tax (sales tax) liability when making
such sales, even if such signs are produced on special order for the purchaser.
Examples of signs having such commercial value would be ones that spell out “real
estate”, “insurance,” or “hamburgers,” and which do not spell out the name of the
purchaser nor the brand name of the purchaser’s product and which are not otherwise
similarly individualized. See 86 Ill. Adm. Code 130.2155 regarding vendors of signs.
When a sign that has commercial value is sold and installed, the installation charge is
also subject to Retailers’ Occupation Tax unless there is a separate agreement for the
installation charge. See 86 Ill. Adm. Code 130.450.

COMPANY/ NAME
Page 3
July 27, 2023
If the sign vendor produces a sign on special order of the customer and the sign
is so specialized that it would have no commercial value to anyone other than that
particular customer who placed the order, the sign vendor would not incur Retailers’
Occupation Tax liability. These transactions would be subject to liability under the
Service Occupation Tax Act, and the sign vendor would be considered a serviceman.
See generally, 86 Ill. Adm. Code 140.101.
Persons who sell signs may incur a Retailers' Occupation Tax, Service
Occupation Tax or Use Tax liability, depending upon the circumstances of each sale.
See 86 Ill. Adm. Code 130.2155.
For signs that are permanently affixed to real estate, the tax consequences
attributable to construction contractors will apply. Under Illinois law, a person who takes
tangible personal property off the market and converts it into real estate is deemed a
construction contractor and is the legal end-user of the tangible personal property. The
construction contractor, as the user, incurs Illinois Use Tax and local Retailers’
Occupation Tax reimbursement liabilities when the tangible personal property that will
be converted into real estate is purchased from registered Illinois suppliers. If such
items were purchased from suppliers that did not collect the tax, the person who
converts the tangible personal property into real estate is required to self-assess and
remit the Use Tax to the Department based upon the cost price of the property. For
information on construction contractors, see 86 Ill. Adm. Code 130.1940 and 130.2075.
Examples of when a sign is considered permanently affixed are found at 86 Ill.
Adm. Code 130.2155(d)(2) and include:
•
•
•

A sign is permanently affixed to real estate when it is bolted or otherwise
permanently affixed to the building or is hardwired into the building’s
general wiring system.
A sign is permanently affixed to real estate when a permanent concrete
foundation is made for the sign and the sign is affixed to its foundation or
hardwired into an electrical system.
A sign is permanently affixed to real estate when it is affixed to a pole that
is placed in the ground.

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,

Tom Grudichak

COMPANY/ NAME
Page 4
July 27, 2023
Associate Counsel
TG:dlb