May an Illinois retailer exclude separately billed air freight paid to acquire goods for sale from taxable gross receipts?

Plain-English summary

A seller could not deduct incoming air freight paid to acquire goods for sale from taxable gross receipts, even when it separately billed that cost to the customer.

The requester bought tile through a distributor and paid extra air freight to accelerate delivery from the manufacturer to the distributor. Illinois treated that incoming freight as the distributor's cost of doing business.

The same rule applied to transportation or delivery costs paid by a seller to move property to an intermediate point from which it would later be delivered or shipped to the buyer.

This response concerned incoming acquisition freight. It did not classify every delivery arrangement between a seller and customer.

What this means for you

Retailers passing through inbound freight

Separately stating the charge does not remove incoming freight from gross receipts. Treat it like other costs of acquiring and selling the property.

Buyers reviewing tax on freight

Identify whose transportation cost it is. This GIL supports tax on the seller's inbound acquisition cost, even when the invoice labels it separately.

Common questions

Q: Was the extra air-freight line taxable in the transaction described?
A: Yes, because it was incoming freight paid by the seller to acquire the tile for sale.

Q: Did separate billing make the incoming freight deductible?
A: No.

Q: Did this GIL decide every outgoing delivery-charge issue?
A: No. Its response addressed incoming freight and movement to an intermediate shipping point.

Citations and references

• 86 Ill. Adm. Code 130.410 — costs of doing business included in gross receipts.
• 86 Ill. Adm. Code 130.415(e) — incoming transportation and delivery charges.

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-11-0071.pdf

Original ruling text

ST 11-0071-GIL 08/29/2011 DELIVERY CHARGES
This letter discusses incoming shipping charges. See 86 Ill. Adm. Code 130.410 and 130.415.
(This is a GIL.)

August 29, 2011

Dear Xxxxx:
This letter is in response to your letter dated August 2, 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:
We inquired through one of our local vendors pricing for the cost of tile for a project we
were bidding on. We were awarded the project and when placing the order for the tile
was told that it was 8-10 weeks for delivery. The owner asked that we price shipping
the tile in by air to meet the schedule. When I inquired on the cost we were quoted a
dollar amount for shipping and the owner approved the additional cost for air freight.
The tile was shipped from the manufacturer to the distributor from where we picked up
the tile. When we were billed, they billed us for the cost of the tile plus sales tax and a
separate cost for the air freight plus sales tax. It is my understanding, after speaking
with Dave at the Illinois Taxpayer Business Hot Line, that there should not be sales tax
on the air freight.
Please send us a letter that we can forward to the distributor verifying that there should
not be sales tax on freight.

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.
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,

Debra M. Boggess
Associate Counsel
DMB:msk