IL ST 10-0115-GIL Illinois Retailers' Occupation (Sales & Use) Tax 2010-12-15

Were separately stated shipping-and-handling charges taxable when party-plan merchandise went to a hostess for customer distribution?

Short answer: Generally yes. ST 10-0115-GIL says shipping and handling was part of the retailer's taxable cost of doing business when merchandise was sent to a party hostess or distributor who then delivered it to purchasers. Separate statement on the invoice did not change that result. The broader rule could exclude qualifying delivery charges only when separately agreed from the sale price and reflective of actual shipping cost.

Apply this to your situation

This page answers the general question as of 2010. Ezel answers yours, under current Illinois tax law, with citations.

Disclaimer: This is an official Illinois Department of Revenue General Information Letter under 2 Ill. Adm. Code 1200.120. A GIL is NOT a statement of Department policy and is NOT binding on the Department. Delivery destination, passage of title, who distributes the merchandise, separate agreement, actual shipping cost, handling markup, and current law can change the result. The letter addresses the requester's party-hostess distribution model and should not be generalized to every separately stated delivery charge. This summary is informational only and is not legal or tax advice.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Shipping and handling was generally taxable when the retailer sent party-plan merchandise to a hostess or distributor who then delivered it to purchasers. The company charged shipping as a percentage of order price and separately labeled it “shipping and handling.”

The GIL treats incoming freight, movement to an intermediate distribution point, overhead, handling, and similar seller expenses as taxable costs of doing business even when separately stated. Sending merchandise to a party host for customer distribution fell within that rule.

The letter's heading also states the broader delivery rule: a charge may be nontaxable when it is separately agreed from the property's selling price and actually reflects shipping cost. The specific response found the hostess-distribution charge was generally a business cost instead.

What this means for you

Separate statement alone is not enough. Trace where the carrier delivers the goods, who performs final distribution, whether the buyer separately agreed to delivery, and whether the amount reflects actual shipping rather than handling or overhead.

Common questions

Q: Did labeling the line “shipping and handling” make it nontaxable?
A: No.

Q: Why was shipping to the hostess taxable?
A: The GIL treated it as the retailer's cost of moving merchandise for later distribution to purchasers.

Q: Are all delivery charges taxable?
A: No. The broader rule described a conditional exclusion, but the facts here did not receive it.

Subject

Delivery Charges

Source

Original ruling text

ST 10-0115-GIL 12/15/2010 DELIVERY CHARGES
Charges designated as delivery or transportation charges are not taxable if it can be shown
that they are both agreed to separately from the selling price of the tangible personal property
which is sold and that such charges are actually reflective of the costs of shipping. See 86 Ill.
Adm. Code 130.415. (This is a GIL.)

December 15, 2010

Dear Xxxxx:
This letter is in response to your letter dated December 2, 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:
Background
We are a direct sales company that markets items exclusively through independent
distributors. Distributors recruit hostesses to hold home parties. A hostess holds a
sales party for her friends and relatives in her home where the company’s products are
demonstrated and sold.
We currently charge shipping as a percentage of the total price with a minimum of
$3.95. Shipping is typically sent to the distributor or hostess who then delivers items to
customers. Shipping is performed by common carrier and our contract is not specific on
when title passes. If product is lost in transit, we replace product and seek
reimbursement from the carrier. Shipping is stated separate on the invoice as ‘shipping
and handling charges’.
Issue
•

Should we include shipping charges in our taxable amount?

If you have any additional questions concerning this issue, please call me.

DEPARTMENT’S RESPONSE:
The Department’s regulation “Cost of Doing Business Not Deductible” 86 Ill. Adm. Code
130.410, provides that “[i]n 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. 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.
This principle is further explained in the Department’s regulation, “Transportation and Delivery
Charges” 86 Ill. Adm. Code 130.415, which provides in subsection (e) that transportation or delivery
charges paid by a seller in acquiring property for sale are merely costs of doing business to the seller
and may not be deducted by such seller in computing his Retailers' Occupation Tax liability, even
though he passes such costs on to his customers by quoting and billing such costs separately from
the selling price of tangible personal property which he sells. The same is true of transportation or
delivery charges paid by the seller in moving property to some point from which the property (when
subsequently sold) will be delivered or shipped to the purchaser.
Please be advised that where retailers send merchandise to party hosts or hostesses who then
distribute the merchandise to purchasers, shipping and handling charges are generally considered
part of the retailer’s costs of doing business and are subject to tax. Please refer to Section 130.410.
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

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