Would a county health department owe Illinois sales tax when reselling toothbrushes to low-income dental patients at its cost?

Plain-English summary

A county health department's at-cost toothbrush sales to its dental clients likely were not subject to Illinois Retailers' Occupation Tax because they were made in performance of a governmental function. The agency planned to buy toothbrushes in bulk and resell them at the same discounted price to residents receiving county dental services.

The general rule was that Illinois governmental bodies, agencies, and instrumentalities incurred Retailers' Occupation Tax when they sold tangible personal property at retail to the public other than in performing a governmental function. The rule prevents governmental sellers from gaining a competitive advantage over private Illinois retailers.

Applying that rule, the Department said the county health department likely was performing its governmental function when it resold the toothbrushes to its clients at cost. Those sales therefore generally were not taxable.

What this means for you

An Illinois public agency should connect the sale directly to its governmental program and document the facts supporting that function. Merely being a governmental body did not exempt all retail sales; the exception turned on what the agency was doing when it made the sale.

Common questions

Q: Are all retail sales by an Illinois governmental body exempt?
A: No. Sales outside the performance of a governmental function generally incurred Retailers' Occupation Tax.

Q: Why were these toothbrush sales treated differently?
A: They supported the county health department's dental services and were made to clients at the same discounted cost.

Q: Was the answer binding?
A: No. The Department declined a PLR and said only that the sales would likely and generally receive this treatment.

Subject

Governmental Bodies

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2011.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2011/st-11-0033.pdf

Original ruling text

ST 11-0033-GIL 05/11/2011 GOVERNMENTAL BODIES
Any governmental body in Illinois, or any agency or instrumentality of any such governmental
body, incurs Retailers' Occupation Tax liability when it engages in the selling of tangible
personal property at retail to the public other than in the performance of a governmental
function. See 86 Ill. Adm. Code 130.2055(a). (This is a GIL.)

May 11, 2011

Dear Xxxxx:
This letter is in response to your letter dated February 4, 2011, 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:
The purpose of this letter is to request a Private Letter Ruling regarding a possible
exemption from Retailers [sic] Occupation Tax.
I represent the AGENCY, which is an agency of county government which is organized
and existing pursuant to 55 ILCS 5/5-25001 et seq. The AGENCY, in its efforts to carry
out programs and activities directed and promoting and protecting the health of the
citizens of COUNTY, provides dental services to county residents. In furtherance of this
goal, the AGENCY desires to acquire bulk quantity of toothbrushes at a discounted rate
and to thereafter, sell these toothbrushes at the same discounted rate to its clients. The
AGENCY’s clientele includes those who, due to financial limitations, would not be able
to secure dental services if not for the AGENCY’s discounted provision of these
services.
The question upon which I am requesting a letter, is whether or not the AGENCY’s
selling toothbrushes to its clients at the same discounted rate that the AGENCY pays for
said toothbrushes would constitute a taxable event under the Retailers [sic] Occupation
Tax Act, and if so, whether such a sale might fit within the parameters of one or more
exemptions from the application of the Retailers [sic] Occupation Tax.

Thank you for your consideration.
clarifications that you may require.

Please feel free to call with any questions or

DEPARTMENT’S RESPONSE:
The Department’s regulation “Public Information, Rulemaking and Organization” provides that
“[w]hether to issue a private letter ruling in response to a letter ruling request is within the discretion of
the Department. The Department will respond to all requests for private letter rulings either by
issuance of a ruling or by a letter explaining that the request for ruling will not be honored.” 2 Ill. Adm.
Code 1200.110(a)(4). The Department declines to issue a Private Letter Ruling and has decided to
respond with a General Information Letter.
The Illinois Retailers' Occupation Tax Act imposes a tax upon persons engaged in this State in
the business of selling tangible personal property at retail 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.
Administrative rules adopted by the Illinois Department of Revenue provide that “the State of
Illinois or any local governments in Illinois, or any agency or instrumentality of any such governmental
body, incurs Retailers' Occupation Tax liability when it engages in the selling of tangible personal
property at retail to the public other than in the performance of a governmental function.” See 86 Ill.
Adm. Code 130.2055(a) The reason for this rule is to ensure that governmental units do not have a
competitive advantage when selling items that are also sold by Illinois retailers.
The rule goes on to discuss items that are considered to be sales in the performance of a
governmental function and that are, therefore, not subject to Retailers’ Occupation Tax, such as the
sale of motor vehicle license plates by the State of Illinois. In accordance with this rule, a county
health department that resells toothbrushes to its clients at the same price that it paid for the
toothbrushes would likely be considered to be doing so in the performance of its governmental
function. As a result, those sales would generally not be subject to Retailers’ Occupation Tax.
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
SJM:msk