What Illinois sales-tax amount applies when grocery customers redeem trading stamps for free or nominal-price cookware?

Plain-English summary

Illinois treated merchandise transferred when customers redeemed trading stamps as a retail sale taxed at the merchandise's retail value.

The requester operated grocery-store "shop and redeem" programs. Customers earned stamps based on purchases and redeemed completed books or sheets for displayed cookware, usually free or for a nominal amount.

Under 86 Ill. Adm. Code 130.2125, the person transferring the cookware upon redemption was engaged in retail selling and owed Retailers' Occupation Tax. It also collected the corresponding Use Tax.

The advertised or stated price or value of the cookware was its retail value for this purpose.

When a customer paid partly in cash and partly with stamps assigned a specific value, the taxable amount included both the cash and the value of the surrendered stamps.

What this means for you

Grocery loyalty programs

Calling the cookware "free" or charging a token amount did not reduce the tax base to zero or the nominal price under the trading-stamp rule described.

Program operators and retailers

Document the advertised or stated retail value and determine which party transfers the merchandise to the customer, because the transferring retailer bears the tax duties described.

Common questions

Q: Is free cookware redeemed with stamps taxable?
A: Yes, based on its retail value.

Q: What is the retail value?
A: The advertised or stated price or value of the item.

Q: What if the customer pays cash plus stamps?
A: The total includes the cash and the specific value assigned to the surrendered stamps.

Citations and references

• 86 Ill. Adm. Code 130.2125 — trading stamps, coupons, and the retail value of redeemed merchandise.

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-11-0093.pdf

Original ruling text

ST 11-0093-GIL 11/10/2011 GROSS RECEIPTS
Persons who engage in the business of transferring tangible personal property upon the
redemption of trading stamps shall be deemed to be engaged in the business of selling such
tangible personal property at retail and shall be liable for and shall pay the tax imposed by the
Retailers' Occupation Tax Act on the basis of the retail value of the property transferred upon
redemption of such stamps. See 86 Ill. Adm. Code 130.2125. (This is a GIL.)

November 10, 2011

Dear Xxxxx:
This letter is in response to your email dated December 14, 2010, 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 are a STATE corporation headquartered in CITY, STATE-1. Our customers are
grocery store retailers and we provide marketing programs for them. The type of
marketing programs we run for them are ‘shop and redeem’ programs. For example,
Grocery Store X advertises a program where for each $10 that you spend with them
they will give you a stamp which the customer collects and affixes into a book or on to a
sheet. When enough stamps are collected they can be redeemed in the store for
cookware that is being displayed in the stores. The cookware is typically given ‘free’ in
exchange for the stamps, but it could carry a nominal value (i.e., .01 cents). We make
our money from the retailers by selling them the program all inclusive of marketing and
point-of-sale materials (i.e., store banners, window posters, easel stands to display the
cookware), the actual redemption stamps, the stamp books, and the cookware. We
typically deliver the entire program directly to the customers [sic] distribution centers via
common carrier, so rarely would store inventory in the state with a contracted third party
warehouse.
You can learn more about our company by visiting our website.

My question relates specifically to the sales and use tax implications of this transaction
between the retailer and the customer upon redemption.
I have done some research and it appears that this type of transaction is best explained
in Title 86, Part 130, Section 130.2125, Trading Stamps, Discount Coupons, Automobile
Rebates and Dealer Incentives. Specifically the section on Trading Stamps seems to
be the most applicable.
I would appreciate your review of the transaction and if applicable a General Information
Letter regarding this transaction. If there is another place that is applicable that I should
be looking at please let me know.
I hope I have provided you with enough information. If you have any questions you can
reach me.
Thank you in advance for your assistance. I look forward to receiving your response.

DEPARTMENT’S RESPONSE:
Please see 86 Ill. Adm. Code 130.2125 which is a Department regulation concerning trading
stamps and coupons. This regulation states, in part, as follows:
a) Trading Stamps. Persons who engage in the business of transferring tangible
personal property upon the redemption of trading stamps shall be deemed to be
engaged in the business of selling such tangible personal property at retail and shall be
liable for and shall pay the tax imposed by the Retailers' Occupation Tax Act on the
basis of the retail value of the property transferred upon redemption of such stamps.
When merchandise is paid for partly in cash and partly by surrendering a trading stamp
valued at a specific amount, the total amount (including the value of surrendered trading
stamp) is subject to Retailers' Occupation Tax.
A retailer transferring tangible personal property for trading stamps must pay Retailers'
Occupation Tax and collect Use Tax on the basis of the retail value of the property transferred upon
redemption of such stamps. The advertised or stated price or value is the “retail value” of the item.
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