Does an Illinois public school district owe Retailers' Occupation Tax when it sells books and supplies to students?

Plain-English summary

An Illinois school district owed Retailers' Occupation Tax when it sold books and supplies to students. Those sales were competitive retail activity, not sales made in direct performance of the district's governmental function.

Illinois explained that governmental units generally incurred Retailers' Occupation Tax on public sales outside their governmental function. Examples included park-district concessions, fire-district smoke detectors, municipal leaf bags, school books and supplies, and state-agency merchandise.

Registration and inventory purchases

The school district had to register as a retailer and remit Retailers' Occupation Tax on its sales.

It could purchase the books and supplies for resale without tax by giving suppliers certificates of resale. It could not give suppliers its governmental exemption identification E number for resale inventory.

Prior tax-free rule had been voided

Illinois had once adopted a regulation allowing public and private schools to sell books and educational supplies to students tax-free. The GIL says private retailers challenged the rule and the Illinois Supreme Court voided it in Follett's Illinois Book & Supply Store, Inc. v. Isaacs.

What this means for you

School districts

Governmental status does not exempt competitive merchandise sales. Register, collect tax, and use resale certificates for the inventory rather than the district's E number.

Students buying books and supplies

The sale was treated like a retail sale by a private bookstore because the district competed in the same market.

Common questions

Q: Were school book sales exempt because the seller was governmental?
A: No.

Q: Could the district buy resale inventory tax-free?
A: Yes, with a certificate of resale.

Q: Could it use its E number for those purchases?
A: No.

Citations and references

• 86 Ill. Adm. Code 130.2055 — governmental-body retail sales.
• 86 Ill. Adm. Code 130.1405 — certificates of resale.
• Follett's Illinois Book & Supply Store, Inc. v. Isaacs, 27 Ill. 2d 600 (1963) — school-sales regulation voided.

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-11-0088.pdf

Original ruling text

ST 11-0088-GIL 10/05/2011 GOVERNMENTAL BODIES
Governmental bodies incur Retailers Occupation Tax liability when selling tangible personal
property to the public for use or consumption. The only exception is the sale of an item by a
governmental body in the performance of its governmental function. See 86 Ill. Adm. Code
130.2055. (This is a GIL.)

October 5, 2011

Dear Xxxxx:
This letter is in response to your letter dated September 22, 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 work for High School District #. We have been filing sales tax ST-1 returns for many
years. I began working for the district last year. As I was filing our August return, I
began questioning why we are paying sales tax. As a prior auditor, I could not recall
any other school district paying sales tax. Although, we have a more unusual school
district since we sell our kids their books at the beginning of the semester and then they
sell them back to us at the end of the semester.
After calling four separate times to the IDR, four different agents gave me the same
answer. Since we are selling books and supplies to students, we do not have to collect
sales tax on the items we sell.
But, after years of paying sales tax, I would like to have in writing from your department,
a confirmation that we do not need to pay sales tax on books and supplies that we sell
to students.
If correct, I will need to file amended returns in the next few months, so your expedience
in verifying our exemption would be greatly appreciated.
Thanks [sic] you so much for your help.

DEPARTMENT’S RESPONSE:
When governmental units make sales that are not in the direct performance of their
governmental function, the sales are generally taxable. See 86 Ill. Adm. Code 130.2055. Examples of
taxable sales by governmental units include the operation of concession stands by park districts,
sales of smoke detectors by fire protection districts, sales of leaf bags by municipalities, sales of
books and supplies by school districts and sales of T-shirts, caps and mugs by State agencies. When
making these types of sales, governmental units must not give their suppliers their exemption
identification “E” numbers. They must, rather, register as retailers with the Department and remit
Retailers' Occupation Tax on their sales. They may make tax-free purchases of the tangible personal
property to be sold by providing Certificates of Resale to their suppliers. See, 86 Ill. Adm. Code
130.1405. The object is to ensure that governmental units do not have a competitive advantage when
selling items that are also sold by Illinois retailers. The Illinois General Assembly did not intend to give
government a competitive selling advantage over Illinois citizens.
The Department once promulgated a regulation that would have permitted school districts and
private schools to sell books and educational supplies to students tax-free. However, retailers of
books and school supplies who were adversely affected by that regulation filed a lawsuit and the
regulation was voided by the Illinois Supreme Court. See, Follett's Illinois Book and Supply Store, Inc.
v. Isaacs, Director of Revenue, 27 Ill. 2d 600, 19 NE 2d 324 (1963).
For these reasons, we conclude that a school district incurs a Retailers' Occupation Tax
liability when it makes retail sales of books and supplies to students because such sales are in
competition with other retailers.
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