Could a hotel use a private attestation form and an organization's Illinois E number to exempt employee purchases and room rentals?

Plain-English summary

An Illinois exemption number did not create a blanket exemption for an organization's employees or for hotel room rentals, and the Department would not approve the proposed private attestation form.

For purchases of tangible personal property, a nonprofit's federal section 501(c)(3) status alone was not enough. The organization had to apply for and receive an Illinois exemption identification number—an E number. That number evidenced exemption from Use Tax when the organization itself purchased property in furtherance of its religious, educational, or charitable purposes. The letter says the exemption applied to sales to the organization holding the E number, not sales to its individual members.

The seller also needed detailed records supporting the nontaxable sale, including the customer's identity, transaction character, date, receipts, and other facts necessary to prove the exemption. The seller bore the burden of establishing the claimed exemption.

Hotel room tax followed a different rule. The Hotel Operators' Occupation Tax Act did not exempt charitable, religious, or educational organizations, governmental bodies, or their agencies. An E number could not avoid that tax. The tax was imposed on the hotel operator, who could collect reimbursement from the customer. The letter identified only permanent-resident rentals and specified diplomatic personnel with qualifying U.S. Department of State cards as available exemptions.

What this means for you

A hotel or other seller could not treat an employee's private attestation as automatic proof that a purchase was exempt. For tangible property, verify that the purchaser is the exempt entity, that it holds an E number where required, that the purchase furthers its organizational purpose, and that the records prove the exemption. Do not use an E number to remove Illinois hotel operators' tax from an ordinary room rental.

Common questions

Q: Is federal 501(c)(3) status enough for the Illinois sales-tax exemption?
A: No. The letter says the organization had to obtain an Illinois E number.

Q: Can an employee use the organization's E number for a personal purchase?
A: No. The letter says the exemption applied to sales to the organization holding the number, not sales to individual members.

Q: Does an E number exempt a hotel room rental?
A: No. The Hotel Operators' Occupation Tax Act did not provide that exemption; the letter identified only permanent-resident and certain diplomatic-personnel exemptions.

Subject

Exempt Organizations

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-11-0051.pdf

Original ruling text

ST 11-0051-GIL 06/22/2011 EXEMPT ORGANIZATIONS
Organizations possessing “E” numbers issued by the Department are exempt on purchases
used in furtherance of their organizational purposes. See 86 Ill. Adm. Code 130.2007. (This is
a GIL.)

June 22, 2011

Dear Xxxxx:
This letter is in response to your letter dated May 20, 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:
I am requesting a binding legal opinion ruling to use the enclosed “Exempt Organization
Attestation of Direct Billing” letter as proof of payment for all federal government, state
and local government and nonprofit employees that qualify for exemption from state and
local sales tax and state and local hotel room tax. This letter was designed in
cooperation between the GOVERNMENT taxing authority and CORPORATION.
In today’s environment of identity theft, most guests are reluctant to allow any business
to make a copy of their organization’s credit card.
Please let me know if you have questions or need additional information. I appreciate
your assistance in this matter.

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. Furthermore, the

Department does not approve the accuracy of private legal publications or forms. Although we are
not providing you with a Private Letter Ruling, we hope the following general information will be of
assistance.
Retailers’ Occupation Tax Act
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. 35 ILCS
120/2; 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. 35
ILCS 105/3; 86 Ill. Adm. Code 150.101.
Illinois Retailers' Occupation and Use Taxes do not apply to sales of service that do not involve
the transfer of tangible personal property to customers. However, if tangible personal property is
transferred incident to sales of service, this will result in either Service Occupation Tax liability or Use
Tax liability for the servicemen depending upon his activities. For your general information see of 86
Ill. Adm. Code 140.101 through 140.109 regarding sales of service and Service Occupation Tax.
Organizations that are recognized as non-profit under Internal Revenue Code Section
501(c)(3), are not necessarily exempt organizations pursuant to Illinois tax law. Such organizations
must obtain an exemption identification number (an “E number”) to qualify. See 86 Ill. Adm. Code
130.2007. Organizations that make application to the Department of Revenue and are determined to
be exclusively religious, educational, or charitable, receive an E number. The E number evidences
that the Department recognizes the organizations as exempt from incurring Use Tax when purchasing
tangible personal property in furtherance of their organizational purposes. If an organization does not
have an E number, then its purchases are subject to tax. Please be aware that currently only sales to
organizations holding the E number are exempt, not sales to individual members of the organization.
All sales to an exempt entity holding an E number must be documented. See the Department’s
regulation at 86 Ill. Adm. Code 130.810(b) which states:
To support deductions made on the tax return form, as authorized under the Act, on
account of receipts from isolated or occasional sales of tangible personal property, on
account of receipts from sales of tangible personal property for resale, on account of
receipts from sales of tangible personal property made within the protection of the
Commerce Clause of the Constitution of the United States, on account of receipts
received by the seller from sales made to any corporation, society, association,
foundation or institution organized and operated exclusively for charitable, religious or
educational purposes, on account of receipts received by the seller from sales made on
or after March 21, 1963, to any governmental body or on any other ground, entries in
any books, records or other pertinent papers or documents of the taxpayer in relation
thereto shall be in detail sufficient to show the name and address of the taxpayer's
customer in each such transaction, the character of every such transaction (whether it is
a sale for resale, a sale made within the protection of the Commerce Clause of the
Constitution of the United States, an isolated or occasional sale, etc.), the date of every
such transaction, the amount of receipts realized from every such transaction and such
other information as may be necessary to establish the nontaxable character of such
transaction under the Act.
The Department’s regulations further provide that:

When a seller claims exemption from the Retailers’ Occupation Tax for receipts
received by the seller from his sale of tangible personal property to a corporation,
society, association, foundation or institution organized and operated exclusively for
charitable, religious or educational purposes, the seller should include such receipts in
his Retailers’ Occupation Tax return form, but then should deduct such receipts on the
line provided for that purpose in the return form. 86 Ill. Adm. Code 130.2005(r)(1).
Sellers claiming the benefit of this exemption are cautioned against laxity in claiming the
benefit of this exemption without verifying the status of the purchaser since the seller
will have the burden of proof in establishing his right to any such claimed exemption.
The Courts have held repeatedly that the burden of sustaining a right to tax exemption
is on the person claiming such exemption. 86 Ill. Adm. Code 130.2005(r)(3).
Some of our regulations addressing sales to tax exempt organizations and governmental
bodies can be found at 86 Ill. Adm. Code 130.120 (Nontaxable Transactions), Section 130.2004
(Sales to Nonprofit Arts or Cultural Organizations), Section 130.2005 (Persons Engaged in Nonprofit
Service Enterprises and in Similar Enterprises Operated As Businesses, and Suppliers of Such
Persons), Section 130.2007 (Exemption Identification Numbers) and Section 130.2080 (Sales to
Governmental Bodies, Foreign Diplomats and Consular Personnel).
The Hotel Operators’ Occupation Tax Act
The Hotel Operators’ Occupation Tax Act imposes a tax upon persons engaged in the
business of renting, leasing or letting rooms in a hotel. 35 ILCS 145/1 et seq. The tax is imposed at
a rate of 5% of 94% of the gross rental receipts from the renting, leasing or letting of such rooms. An
additional tax is also imposed at a rate of 1% of 94% of such gross rental receipts.
The Hotel Operators' Occupation Tax Act does not include any provision for the exemption of
exclusively charitable, religious, or educational organizations, or for governments or their agencies.
Therefore, hotel operators renting rooms to organizations possessing exemption numbers, or
governmental units (State, Federal, local) are not exempt from paying the tax on room rentals to such
entities and the above mentioned tax exemption identification numbers cannot be used to avoid this
tax. See 86 Ill. Adm. Code 480.101(b)(4).
Please remember the Hotel Operators' Occupation Tax is not a tax imposed upon those guests
renting the rooms. Rather, it is imposed upon persons (i.e., hotel operators) engaged in the business
of renting, leasing or letting rooms in a hotel. However, hotel operators are allowed to reimburse
themselves for their tax liability by collecting a corresponding amount of reimbursement from
customers.
There are two factors we would like to stress in regard to exclusively charitable, religious, or
educational organizations, or for governments or their agencies. First, the tax is not imposed upon
the entity renting the room from the hotel operator. It is imposed, rather, upon the hotel operator. An
exemption is useless in this context, because there is no tax that is being imposed upon the entity.
There is no tax, in other words, from which the group could be exempted. Secondly, the terms of the
Hotel Operators' Occupation Tax Act do not provide that exclusively charitable, religious or
educational organizations or government agencies are exempted from paying the reimbursement
charges which hotel operators are authorized to charge.
The only exemptions available to hotel operators are for rentals to permanent residents and to
certain diplomatic personnel. The exemption for rentals to certain diplomatic personnel applies only
to diplomatic personnel possessing certain types of diplomatic tax exemption cards, issued by the
U.S. Department of State, Office of Foreign Missions. See Section 480.101(b)(7).

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