Were custom-printed checks and deposit tickets sold by a bank subject to Retailers' Occupation Tax or Service Occupation Tax?

Plain-English summary

Custom-printed checks and deposit tickets generally fell under Service Occupation Tax when they lacked general utility and could not be sold to another customer for substantially the same price. The bank asked whether it needed to collect sales tax on paper forms it produced for customers.

The GIL contrasts custom products with stock or standard items. A special-order item that still served substantially the same function as a standard item was subject to Retailers' Occupation Tax when sold. A truly customer-specific print item generally was treated as property transferred incident to a service.

For service transactions, the letter described four historical ways to measure liability: separately stated property price, 50% of the bill, cost price for a registered de minimis serviceman, or Use Tax on cost for an unregistered de minimis serviceman. The applicable method depended on registration and annual business ratios.

What this means for you

Document why each printed form is customer-specific and whether it has meaningful resale value to anyone else. Then apply the current service-provider rules based on registration, annual property ratios, invoicing, and any subcontracted printing.

Common questions

Q: Were all special-order printed items treated as services?
A: No. An item with general utility comparable to a stock product could remain a taxable retail sale.

Q: Did the GIL impose tax on the bank's entire bill in every case?
A: No. It described multiple tax-base methods.

Q: Could an unregistered de minimis serviceman collect “tax” from the customer?
A: No under the rule described; it paid or self-assessed Use Tax as the end user.

Subject

Service Occupation Tax

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-10-0124.pdf

Original ruling text

ST 10-0124-GIL 12/22/2010 SERVICE OCCUPATION TAX
Under the Service Occupation Tax, servicemen are taxed on tangible personal property
transferred incident to a sale of service.. See 86 Ill. Adm. Code Part 140. (This is a GIL.)

December 22, 2010

Dear Xxxxx:
This letter is in response to your e-mail inquiry dated May 10, 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:
INDIVIDUAL gave me your name as a person that could answer a sales tax question
that I posed to her.
I work for a bank and we were wondering if sales tax would need to be collected on
paper items such as checks and deposit tickets that we (the bank) produce and sell to
our customers?
If you need additional info, please just let me know.
Thank you in advance for any help you can provide.

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.

As a general rule, when special order or custom products are items of general utility and serve
substantially the same function as stock or standard items, the products will be subject to the
Retailers’ Occupation Tax when sold. Items that would not be considered stock or standard items and
could not be sold to someone other than the purchaser for substantially the same price would not be
subject to the Retailers’ Occupation Tax when sold, but would generally be subject to the Service
Occupation Tax. Special order or custom print items are generally not considered stock or standard
items and are generally not able to be sold to someone other than the purchaser for substantially the
same price. Therefore special order or custom print items are generally subject to the Service
Occupation Tax.
Under the Service Occupation Tax Act, businesses providing services (i.e. servicemen) are
taxed on tangible personal property transferred as an incident to sales of service. See 86 Ill. Adm.
Code 140.101. The purchase of tangible personal property that is transferred to the service customer
may result in either Service Occupation Tax liability or Use Tax liability for the servicemen depending
upon his activities. The serviceman’s liability may be calculated in one of four ways: (1) Service
Occupation Tax on the separately stated selling price of tangible personal property transferred
incident to service; (2) Service Occupation Tax on 50% of the serviceman's entire bill; (3) Service
Occupation Tax on the serviceman's cost price if the serviceman is a registered de minimis
serviceman; or (4) Use Tax on the serviceman's cost price if the serviceman is a de minimis
serviceman and is not otherwise required to be registered under Section 2a of the Retailers'
Occupation Tax Act.
Using the first method, servicemen may separately state the selling price of each item
transferred as a result of the sale of service. The tax is then calculated on the separately-stated
selling price of the tangible personal property transferred. If the servicemen do not separately state
the selling price of the tangible personal property transferred, they must use 50% of the entire bill to
the service customer as the tax base. Both of the above methods provide that in no event may the tax
base be less than the servicemen's cost price of the tangible personal property transferred. See 86 Ill.
Adm. Code 140.106.
The third way servicemen may account for their tax liability only applies to de minimis
servicemen who have either chosen to be registered or are required to be registered because they
incur Retailers' Occupation Tax liability with respect to a portion of their business. See 86 Ill. Adm.
Code 140.109. Servicemen may qualify as de minimis if they determine that the annual aggregate
cost price of tangible personal property transferred as an incident of the sale of service is less than
35% of the total annual gross receipts from service transactions (75% in the case of pharmacists and
persons engaged in graphics arts production). Servicemen no longer have the option of determining
whether they are de minimis using a transaction by transaction basis. Registered de minimis
servicemen are authorized to pay Service Occupation Tax (which includes local taxes) based upon
their cost price of tangible personal property transferred incident to the sale of service. Such
servicemen should give suppliers resale certificates and remit Service Occupation Tax using the
Service Occupation Tax rates for their locations. Such servicemen also collect a corresponding
amount of Service Use Tax from their customers, absent an exemption.
The final method of determining tax liability may be used by de minimis servicemen that are
not otherwise required to be registered under Section 2a of the Retailers' Occupation Tax Act. Such
de minimis servicemen handle their tax liability by paying Use Tax to their suppliers. If their suppliers
are not registered to collect and remit tax, the servicemen must register, self-assess and remit Use
Tax to the Department. The servicemen are considered to be the end-users of the tangible personal
property transferred incident to service. Consequently, they are not authorized to collect a "tax" from
the service customers. See 86 Ill. Adm. Code 140.108.

For discussion of tax obligations in multi-service situations (where the primary serviceman subcontracts some or all of the work to a secondary serviceman), please see 86 Ill. Admin. Code
140.145.
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.
Sincerely,

Samuel J. Moore
Associate Counsel

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