Can a nonprofit single-member LLC use its educational nonprofit parent's Illinois E number without applying separately?

Plain-English summary

A nonprofit single-member LLC generally could not use its educational nonprofit parent's Illinois E number. Without its own active E number, the LLC's purchases were taxable.

An E number showed that Illinois recognized an organization as exempt from Use Tax on purchases made in furtherance of its organizational purposes. Relationship to an E-number holder did not automatically extend that exemption.

The 50-subsidiary rule did not apply

Illinois law allowed the Department, in its discretion, to issue one E number to a qualifying parent and its subsidiaries when the organization had more than 50 subsidiary organizations operating in Illinois.

The Department said that statutory rule did not apply to a corporation that was sole member of one LLC. It could not narrow or expand the more-than-50 requirement.

The LLC could apply independently

The LLC could seek its own exemption if it was organized and operated exclusively for educational purposes.

What this means for you

Nonprofit groups with disregarded or single-member LLCs

Federal reporting treatment does not establish Illinois sales-tax exemption. Confirm that each purchasing entity has an active E number unless the specific multi-subsidiary provision applies.

Educational LLCs

An LLC may apply in its own right when it meets the educational-purpose test described.

Common questions

Q: Can one parent E number cover a single LLC subsidiary?
A: Not under the more-than-50-subsidiary rule discussed in this GIL.

Q: Are the LLC's purchases exempt without an E number?
A: Generally no.

Q: Can the LLC apply separately?
A: Yes, if organized and operated exclusively for educational purposes.

Citations and references

• 35 ILCS 120/1g — discretionary single E number for qualifying organizations with more than 50 Illinois subsidiaries.
• 35 ILCS 120/2-5(11) — educational-organization exemption.
• 86 Ill. Adm. Code 130.2007 — exemption identification numbers.

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-11-0080.pdf

Original ruling text

ST 11-0080-GIL 09/19/2011 EXEMPT ORGANIZATIONS
If an organization does not have an active E number, then its purchases are subject to tax.
See 86 Ill. Adm. Code 130.2007(a). (This is a GIL.)

September 19, 2011

Dear Xxxxx:
This letter is in response to your letter dated February 16, 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 represent an Illinois not-for-profit corporation that has been determined by the
Illinois Department of Revenue to be ‘organized and operated exclusively for
educational purposes.’ Accordingly, the corporation possesses a tax exemption ‘E’
number issued by the Illinois Department of Revenue. This not-for-profit corporation is
also exempt from federal income tax under Section 501(c)(3) of the Internal Revenue
Code.
This corporation is the sole member of a limited liability company (‘LLC’) organized
under the laws of the State of Illinois. The sole member LLC is also not for profit and is
exempt from federal tax under Section 501(c)(3) of the Internal Revenue Code. The
income and expenses of the sole member LLC are reported to the IRS by the sole
member not for profit corporation as part of its annual Form 990 filing.
We note in your ‘Taxpayer Answer Center’ on the Department of Revenue website that
if an
LLC is treated as a sole proprietorship for federal income tax purposes
and its income is reported on its owner’s U.S. Form 1040, U.S. Individual
Income Tax Return, for Illinois purposes the LLC’s income will be reported
on its owner’s Form IL-1040, Illinois Individual Income Tax Return.
In addition, Illinois regulation (Title 86, Part 150, Section 130.2007(g) relating to the
Retailers' Occupation Tax states,

The Department, in its sole discretion, may issue to a tax-exempt
organization with more than 50 subsidiaries operating in Illinois, one
exemption identification number for the use of the parent organization and
each of its subsidiary organizations. (Section 1g of the Act.) The
Department will consider the size, uniformity, structure, and purposes of
the organization as well as administrative burdens of the Department and
of the applicants.
Based on the above, it would seem logical that the Illinois tax exempt status afforded to
the not for profit corporation would apply to that corporation’s sole member LLC with no
separate filing required by the LLC. Thus, the LLC would assume and use the E
number of its sole member not for profit corporation.
Please advise if this is the position of the Department of Revenue.

DEPARTMENT’S RESPONSE:
An organization that makes application to the Department of Revenue and is determined to be
exclusively religious, educational, or charitable, receives an exemption identification number (an "E"
number). See 86 Ill. Adm. Code 130.2007. This number evidences that the Department recognizes
the organization as exempt from incurring Use Tax when purchasing tangible personal property in
furtherance of its organizational purposes. If an organization does not have an active E number, then
its purchases are subject to tax. This would generally be the case even if the organization that does
not have an E number is related to an organization that does have an E number.
Section 1g of the Retailers' Occupation Tax Act provides, in part, that in the case of a
corporation, society, association, foundation, or institution organized and operated exclusively for
charitable purposes and that has more than 50 subsidiary organizations in Illinois, the Department, in
its sole discretion, may issue one exemption identification number to be used by the parent
organization and each subsidiary organization. 35 ILCS 120/1g The provision requiring more than 50
subsidiary organizations is a statutory provision. The Department is unable to either narrow or
enlarge the scope of the statute. This provision would not apply to the relationship between a limited
liability company and a corporation that is the sole member of that limited liability company.
However, a limited liability company may apply for an exemption in its own right if the limited
liability company is organized and operated exclusively for educational purposes. See 35 ILCS
120/2-5(11).
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