Who owed Illinois tax when a granite-countertop business sold countertops over the counter or installed them permanently in real property?

Plain-English summary

Illinois treated an over-the-counter countertop sale differently from a contract to sell and permanently install the countertop. On an over-the-counter sale without installation, the retailer owed Retailers' Occupation Tax and collected the corresponding Use Tax from the customer. If installation was contracted separately, the installation charge was a separate service on which the customer incurred no tax under the cited rule.

A combined sale-and-installation contract for property permanently affixed to real estate was a construction contract. The contractor was the end user of the incorporated materials and owed Use Tax on their cost price. If the supplier did not collect the tax, the contractor had to self-assess and pay it, with a credit for qualifying tax properly paid to another state.

The customer did not owe Use Tax on the contractor's materials, and the contractor had no legal authority to collect that tax from the customer as "sales tax." The contractor could raise its price or contract for reimbursement of its own tax cost, but had to label reimbursement accordingly.

What this means for you

Document whether the transaction is a retail sale, a retail sale plus a genuinely separate installation agreement, or one construction contract for permanent affixation. That structure determines whether the retailer collects tax from the customer or the contractor pays Use Tax on material cost.

Common questions

Q: Could the construction contractor charge the customer sales tax on permanently installed materials?
A: No. The GIL said the contractor was the end user and could not bill its own Use Tax liability as sales tax, though it could seek reimbursement or increase its price.

Q: What if the contractor bought materials without paying Illinois tax?
A: It had to self-assess Use Tax, subject to a credit for tax properly due and paid to another state.

Citations and references

• 86 Ill. Adm. Code 130.101 and 150.101
• 86 Ill. Adm. Code 130.450
• 86 Ill. Adm. Code 130.1940 and 130.2075
• 86 Ill. Adm. Code 150.310

Subject

Construction Contractors

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2010.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2010/st-10-0001.pdf

Original ruling text

ST 10-0001-GIL 01/12/2010 CONSTRUCTION CONTRACTORS
When a construction contractor permanently affixes tangible personal property to real property,
the contractor is deemed the end user of that tangible personal property. As the end user, the
contractor incurs Use Tax on the cost price of that tangible personal property. See 86 Ill. Adm.
Code 130.1940 and 86 Ill. Adm. Code 130.2075. (This is a GIL.)

January 12, 2010

Dear Xxxxx:
This letter is in response to your letter dated December 27, 2009, in which you request
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:
After speaking with various IDOR sales tax supervisors on various requests for answers
to these questions, we finally were directed to contact your offices for a written
explanation to our questions. Can your office or someone provide a written response as
to what we are supposed to advise in this situation relating to the questions below?
Here’s the situation.
For a manufacturer of granite kitchen countertops who manufacturers [sic] in-house but
also installs them. They sell to kitchen home builders which is resale and then to
residential consumers. The question is on the manufactured countertops if the
manufacturer pays sales tax when he buys products he converts. Three questions
•

Do they need to collect sales tax if they pay it on all the materials they buy when
they buy them? And they weren’t charging sales tax to clients?

•

Would they even need to file ST-1’s then?

•

Would they then have to report or pay use tax? How is the Use tax configured
then?

Please email me back or send in writing back to our address below
Thank you for your help!!!

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 Illinois, 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. If the purchases
occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of purchase. The
retailers are then allowed to retain the amount of Use Tax paid to reimburse themselves for their
Retailers' Occupation Tax liability incurred on those sales.
If a customer purchases tangible personal property, or in your case counter tops, over-thecounter without installation, then the retailer owes Retailers' Occupation Tax and must collect the
corresponding Use Tax from the customer. If a customer purchases counter tops over-the-counter
and separately contracts for installation of the cabinets, then the retailer owes Retailers' Occupation
Tax and must collect the corresponding Use Tax from the customer on the sale of the cabinets. The
separately contracted for installation of the cabinets is a separate service and no tax is incurred by
the customer on the installation charges. See 86 Ill. Adm. Code 130.450.
A contract that provides for both the sale and installation of tangible personal property that is
permanently affixed or incorporated into a structure is considered a construction contract. The tax
liabilities regarding construction contractors in Illinois may be found at 86 Ill. Adm. Code 130.1940
and 130.2075 on the Department’s Internet website. The term construction contractor includes
general contractors, subcontractors, and specialized contractors such as landscape contractors.
In Illinois, construction contractors are deemed end users of tangible personal property
purchased for incorporation into real property. As end users of such tangible personal property, these
contractors incur Use Tax liability for such purchases based upon their cost price of the tangible
personal property. See 86 Ill. Adm. Code 130.1940 and 86 Ill. Adm. Code 130.2075.
Therefore, any tangible personal property that a construction contractor purchases that will be
permanently affixed to or incorporated into real property in this State will be subject to Use Tax. If
such contractors did not pay the Use Tax liability to their suppliers, those contractors must self assess
their Use Tax liability and pay it directly to the Department. If the contractors have already paid a tax
in another state regarding the purchase or use of such property, they will be entitled to a credit
against their Illinois Use Tax liability to the extent that they have paid tax that was properly due to
another state. See 86 Ill. Adm. Code 150.310.
It is important to note that since construction contractors are the end users of the materials that
they permanently affix to real estate, their customers incur no Use Tax liability and the construction
contractors have no legal authority to collect the Use Tax from their customers. However, many
construction contractors pass on the amount of their Use Tax liabilities to customers in the form of
higher prices or by including provisions in their contracts that require customers to “reimburse” the
construction contractor for his or her tax liability. Please note that this reimbursement cannot be
billed to a customer as “sales tax,” but can be listed on a bill as a reimbursement of tax. The choice

of whether a construction contractor requires a tax reimbursement from the customer or merely raises
his or her price is a business decision on the construction contractor’s part.
The Department is reviewing its rules on construction contractors and is considering amending
its rules to more fully explain the parties’ tax liabilities when a construction contractor or retailer
contracts with another party to manufacture and permanently affix or incorporate into a structure
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:msk