Is an unavoidable percentage fee added to a taxable Illinois retail transaction itself included in taxable gross receipts?

Plain-English summary

An unavoidable percentage fee linked to a taxable retail purchase was generally part of Illinois taxable gross receipts.

Retailers' Occupation Tax applied to all consideration the seller received from selling tangible personal property to end users.

The seller could not deduct costs of property, materials, labor, service, idle time, inbound freight, overhead, processing, commissions, interest, or other business expenses. Those costs remained in gross receipts even when separately stated on the customer's bill.

The GIL says fees, charges, and surcharges were generally taxable costs of doing business. If the buyer could not escape the fee or choose whether to pay it, there was an inseparable link between the purchase and the percentage fee.

What this means for you

Retailers adding mandatory fees

Do not remove a mandatory fee from the tax base merely because it is calculated after tax or shown on a separate invoice line. The letter focuses on whether the fee is unavoidable and linked to the purchase.

Optional charges

This GIL addresses an unavoidable fee. It does not establish the treatment of a genuinely optional, separately purchased service.

Common questions

Q: Are ordinary business costs deductible from taxable receipts?
A: No under the rule described.

Q: Does separately stating the fee make it nontaxable?
A: No by itself.

Q: What fact made the percentage fee taxable?
A: The purchaser could not avoid it or choose not to pay it, creating an inseparable link to the retail purchase.

Citations and references

• 86 Ill. Adm. Code 130.410 — costs of doing business included in gross receipts.
• Nancy Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009) — inseparable-link authority cited by the GIL.

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-11-0086.pdf

Original ruling text

ST 11-0086-GIL 09/30/2011 GROSS RECEIPTS
Illinois Retailers' Occupation Tax is imposed upon gross receipts from the sale of tangible
personal property to end-users and no deductions shall be taken by a taxpayer from gross
receipts on account of the cost of the property sold, the cost of materials used, labor costs, or
any other expense whatsoever. See 86 Ill. Adm. Code 130.410. (This is a GIL.)

September 30, 2011

Dear Xxxxx:
This letter is in response to your letter dated September 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 recently had a client inquiring about whether or not a percentage fee can be charged
on a consumer transaction after the tax has been assessed.
If there is a regulation or statute which regulates this, I would appreciate knowing where
it could be found.

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 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.
Illinois Retailers' Occupation Tax (sales tax) is imposed upon gross receipts from the sale of
tangible personal property to end-users and gross receipts is defined to mean all the consideration
received by sellers valued in money whether received in money or otherwise, but not including the
value of or credits given for like kind traded-in property.

In 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. See 86 Ill. Adm. Code 130.410.
Generally, fees, charges and surcharges are costs of doing business subject to the tax. If the
purchaser cannot escape the fee or does not have the option of whether or not to pay the fee, an
inseparable link exists between the purchase of the item and the percentage fee. See Nancy Kean v.
Wal-Mart Stores, Inc., 235 Ill. 2d 351, 919 N.E.2d 926 (2009).
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