Is Illinois sales tax computed before or after an instant appliance rebate that a manufacturer or utility reimburses to the retailer?

Plain-English summary

A point-of-sale rebate remained in the Illinois sales-tax base when the retailer was reimbursed for it. Gross receipts included all consideration the seller actually received, and a reimbursement for a customer discount counted as additional consideration.

In the request's example, the retailer sold a $1,000 energy-efficient appliance, gave the customer a $100 instant rebate, and later recovered that $100 from a manufacturer or utility. The GIL's rule made the full $1,000 taxable, not only the customer's $900 payment. The Department specifically said manufacturer and utility reimbursements were generally taxable even when the utility obtained the money from the State.

The opposite rule applied to a true retailer-funded discount. If the seller reduced the price and received no reimbursement or rebate for that reduction, only the discounted amount actually received was taxable.

What this means for you

Trace the funding for every coupon or instant rebate. Point-of-sale systems should distinguish a retailer's own unreimbursed price reduction from a discount later reimbursed by a manufacturer, utility, or other source.

Common questions

Q: Does separately showing the rebate on the receipt remove it from gross receipts?
A: Not when the retailer is reimbursed. The Department focused on the total consideration received, including the later reimbursement.

Q: What if the retailer absorbs the discount?
A: If there is no reimbursement, only the discounted amount received from the customer is taxable under the rule described.

Citations and references

• 86 Ill. Adm. Code 130.401 (gross receipts)
• 86 Ill. Adm. Code 130.2125 (discounts and rebates)
• 2 Ill. Adm. Code 1200.120 (GILs)

Subject

Gross Receipts

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-10-0076.pdf

Original ruling text

ST 10-0076-GIL 08/16/2010 GROSS RECEIPTS
If a seller receives a reimbursement or rebate for a discount, the amount of that reimbursement
or rebate is considered part of the gross receipts received by the seller and is subject to
Retailers' Occupation Tax. If a seller provides a discount to a purchaser and does not receive
a reimbursement or rebate for that discount, only the (discounted) amount received by the
seller is taxable. See 86 Ill. Adm. Code 130.2125. (This is a GIL.)

August 16, 2010

Dear Xxxxx:
This letter is in response to your letter dated July 9, 2010, 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:
COMPANY and its affiliates respectfully request formal guidance regarding the taxability
of manufacturer and third party rebates as discussed below.
Facts
In an effort to promote the benefits of buying a new energy efficient appliance,
appliance manufacturers, as well as utility companies, will offer customers a rebate
upon the purchase of a qualifying appliance. In order to receive the rebate, customers
are generally required to submit an approved rebate form, along with proof of purchase,
to the third party (either the appliance manufacturer or utility company) that is offering
the rebate. After the documentation has been received and verified, the third party
providing the rebate will then submit a check directly to the qualifying customer.
However, in an attempt to expedite the rebate process, retailers, such as COMPANY,
have agreed to provide customers with instant point of sale rebates. Thereby,
customers are no longer required to submit rebate forms and purchase documentation
to third parties that are providing the rebate. Instead, the retailer will be responsible for
submitting the necessary sales documentation to the third party and upon approval of

the documentation, the third party will reimburse the retailer for the instant point of sale
rebate the retailer provided to the customer.
For example, COMPANY’s retail selling price for a certain qualifying energy efficient
appliance is $1,000. Upon purchasing the qualifying appliance, a customer will receive
a $100 instant point of sale rebate. The amount of the applicable rebate will be
identified and separately itemized on the customer’s receipt. After submitting the
appropriate sales documentation to the participating third party (either the appliance
manufacturer or utility company), COMPANY will be reimbursed by the third party for
the $100 point of sale rebate COMPANY provided to the customer.
Issue(s)
(1)

If COMPANY is reimbursed by an appliance manufacturer for the point of sale
rebate COMPANY provided to a customer who purchased a qualifying energy
efficient appliance, should COMPANY charge sales tax on the $1,000 retail
selling price or on the $900 net selling price ($1,000 retail selling price less $100
rebate)?

(2)

If COMPANY is reimbursed by a utility company for the point of sale rebate
COMPANY provided to a customer who purchased a qualifying energy efficient
appliance, should COMPANY charge sales tax on the $1,000 retail selling price
or on the $900 net selling price ($1,000 retail selling price less $100 rebate)?

(3)

Would the application of the sales tax in issue number 2 above be treated any
differently if the money used by the utility company for the rebate program was
funded by a state or local government agency? For example, the utility company
would reimburse COMPANY through special funding obtained from the State’s
Public Utility Commission?

(4)

If COMPANY is reimbursed directly from a state or local government agency for
the point of sale rebate COMPANY provided to a customer who purchased a
qualifying energy efficient appliance, should COMPANY charge sales tax on the
$1,000 retail selling price or on the $900 net selling price ($1,000 retail selling
price less $100 rebate)?

Thank you for your time and consideration with respect to this issue. Please contact me
if you have any questions or need any additional information.

DEPARTMENT’S RESPONSE:
Gross receipts subject to Retailers' Occupation Tax are defined as all the consideration
actually received by the seller, except traded-in tangible personal property. See 86 Ill. Adm. Code
130.401. If a seller receives a reimbursement or rebate for a discount, the amount of that
reimbursement or rebate is considered part of the gross receipts received by the seller. This amount
is fully taxable. See 86 Ill. Adm. Code 130.2125. If a seller provides a discount to a purchaser and
does not receive a reimbursement or rebate for that discount, only the (discounted) amount received
by the seller is taxable. See 86 Ill. Adm. Code 130.2125.

Rebates received by a retailer from a manufacturer or a utility company, whether or not the
utility obtained the funds from the State, would generally be considered part of gross receipts and
fully taxable.
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