Does an Illinois charitable foundation with an E number avoid Retailers' Occupation Tax on continuous website and fundraising-event sales of logo merchandise to the public?

Plain-English summary

An Illinois E number does not give a charitable organization a blanket exemption from tax on its own retail sales. Federal 501(c)(3) status is also not enough by itself; an organization must receive an Illinois exemption identification number to qualify for Illinois exempt-organization treatment.

An E number shows that Illinois recognizes the organization as exempt from Use Tax on purchases made in furtherance of its organizational purposes. Sales to the organization may be exempt, but sales to its individual members are not exempt merely because of their membership.

Three narrow exceptions for the organization's own sales

The GIL identifies:

1. Sales to members.
2. Noncompetitive sales.
3. Occasional dinners and similar activities.

If an organization sells to both members and nonmembers, it does not qualify for the member-sales exception described in the letter.

Merchandise available through ordinary business establishments is generally competitive. The GIL says clothing such as hats is normally sold by other businesses, and the dominant motive is acquiring the property rather than merely making a donation. A charity's logo on the item does not by itself make the sale exempt.

For occasional dinners and similar activities, "occasional" means no more than twice in a calendar year.

What this means for you

Charities selling merchandise online

Continuous public sales of bags, caps, apparel, pins, coins, or similar goods should not be assumed exempt merely because all proceeds support the charity or the goods bear its name.

Organizations with an E number

Separate the exemption for qualifying purchases from the tax treatment of the organization's own sales. The E number does not automatically remove Retailers' Occupation Tax from those sales.

Fundraising events

The occasional-activity exception is limited. The regulation cited in the GIL defines occasional as no more than two activities in a calendar year.

Common questions

Q: Is federal 501(c)(3) status enough for Illinois exemption?
A: No. The organization must obtain an Illinois E number for the Illinois exemption described.

Q: Does an E number exempt all of the charity's merchandise sales?
A: No. The GIL describes only limited member, noncompetitive, and occasional-activity exceptions.

Q: Does putting the charity's logo on a hat make the sale noncompetitive?
A: No by itself. Hats and similar clothing are generally available from business establishments, and the GIL treats the acquisition of the item as the dominant motive.

Q: How often may an activity occur and still be "occasional"?
A: No more than twice in a calendar year under the cited regulation.

Citations and references

• 35 ILCS 105/3 — Illinois Use Tax.
• 86 Ill. Adm. Code 130.2005(a)(2)-(4) — sales to members, noncompetitive sales, and occasional dinners or similar activities.
• 86 Ill. Adm. Code 130.2007 — Illinois exemption identification numbers.
• 86 Ill. Adm. Code 150.130 — purchaser responsibility when Use Tax is not collected.

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-11-0105.pdf

Original ruling text

ST 11-0105-GIL 12/28/2011 EXEMPT ORGANIZATIONS
Exclusively religious, educational, or charitable organizations that have been given E numbers
by the Department are allowed to engage in a very limited amount of retail selling without
incurring Retailers' Occupation Tax liability. See 86 Ill. Adm. Code 130.2005. (This is a GIL.)

December 28, 2011

Dear Xxxxx:
This letter is in response to your letter dated November 29, 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 are writing on behalf of the FOUNDATION to request guidance as to whether they
are obligated to collect and remit the Retailers' Occupation Tax.
The FOUNDATION is a 501(c)(3) organization and is exclusively charitable in nature.
The have been issued an ‘E number’ by the State of Illinois. The Foundation sells
merchandise to the general public via its website and at various fundraising events
throughout the year. Items sold include bags, caps, apparel, lapel pins, and
commemorative coins, substantially all of which bear the FOUNDATION’s name and
logo.
We are requesting guidance as to whether, based on the facts and circumstances of
their particular situation, the Foundation is exempt from collecting and remitting the
Retailers' Occupation Tax as provided for in Section 130.2005 of Title 86 of The Illinois
Administrative Code.
According to Section 130.2005(a)(3)(A), exclusively charitable organizations are exempt
from the Retailers' Occupation Tax ‘when it can be said that such selling is
noncompetitive with business establishments’. Section 130.2005(a)(3)(B) contains four
tests for determining whether selling is noncompetitive. Each test, as it applies to the
FOUNDATION, is addressed below:

1)

The transactions are conducted by members of the charitable entity and not by
any franchisee or licensee.
The Foundation’s sales are made through a website or by volunteers of
the Foundation and not by a franchisee or licensee. The Foundation’s
sales clearly meet this test.

2)

All of the proceeds must go to the charity.
All proceeds from the Foundation’s sales go directly to the Foundation and
are used to further its charitable purpose. The Foundation meets this test
as well.

3)

The transaction must not be a continuing one but rather should be held either
annually or a reasonably small number of times within a year. The test of
reasonableness would be an administrative decision, to be made by the
Department of Revenue.
Since the Foundation sells items through their website, we recognize their
sales could be considered continuous.

4)

The reasonably ascertainable dominant motive of most transfers of the items
sold must be the making of a charitable contribution, with the transfer of property
being merely incidental and secondary.
Because substantially all of the items sold bear the FOUNDATION name
and logo, we assume the dominant motive of people purchasing the
merchandise is to make a charitable donation to the Foundation and to
raise further awareness of the Foundation and its purpose.

Section 130.2005(a)(3)(C) of Title 86 of The Administrative Code provides two
additional guidelines to resolve questions raised by each individual situation:
-

-

The nature of the particular item sold. All other things being equal, the decision
as to candy might well be different from the decision as to refrigerators.
The character of the particular sale, and the real practical effect upon punitive
competition.

While the Foundation’s sales may be considered to be continuous (test 2 in Section
130.2005(a)(3)(B) above) all other criteria of Section 130.2005(a)(3)(B) are met. When
all the facts and circumstances of the Foundation’s sales are considered, we think it is
unlikely that the FOUNDATION sales have any real effect on the sales of business
establishments and are therefore noncompetitive in nature.
Should you need any further information in order to provide guidance as to whether the
Foundation must collect and remit the Retailers' Occupation Tax on its sales, please
feel free to contact me.

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 to purchasers for use or consumption. See 86 Ill.
Adm. Code 130.101. The tax is measured by the seller's gross receipts from retail sales made in the
course of such business. "Gross receipts" means the total selling price or the amount of such sales.
The retailer must pay Retailers' Occupation Tax to the Department based upon its gross receipts, or
actual amount received, from the sale of the tangible personal property.
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 35 ILCS 105/3; 86 Ill. Adm.
Code 150.101. These taxes comprise what is commonly known as "sales" tax in Illinois. If the
purchases occur in Illinois, the purchasers must pay the Use Tax to the retailer at the time of
purchase. The retailers are then allowed to retain the amount of Use Tax paid to reimburse
themselves for their Retailers' Occupation Tax liability incurred on those sales. If the retailer does not
collect the Use Tax from the purchaser for remittance to the Department, the purchaser is responsible
for remitting the Use Tax directly to the Department. See 86 Ill. Adm. Code 150.130.
Organizations that are recognized as non-profit under Internal Revenue Code Section
501(c)(3), are not necessarily exempt organizations pursuant to Illinois tax law. Such organizations
must obtain an exemption identification number (an “E number”) to qualify. See 86 Ill. Adm. Code
130.2007.
Organizations that make application to the Department of Revenue and are determined to be
exclusively religious, educational, or charitable, receive an E number. The E number evidences that
the Department recognizes the organizations as exempt from incurring Use Tax when purchasing
tangible personal property in furtherance of their organizational purposes. If an organization does not
have an E number, then its purchases are subject to tax. Please be aware that currently only sales to
organizations holding the E number are exempt, not sales to individual members of the organization.
While organizations that have received an E number are, as a general matter, subject to
Retailers’ Occupation Tax upon their own sales of tangible personal property, there are three limited
exceptions where such organizations are authorized to engage in a restricted amount of retail selling
activity without incurring Retailers' Occupation Tax liability. The limited exceptions available to not-forprofit organizations described in 86 Ill. Adm. Code 130.2005 include: (1) Sales to Members (see 86 Ill.
Adm. Code 130.2005(a)(2)); (2) Noncompetitive Sales (see 86 Ill. Adm. Code 130.2005(a)(3)); and
(3) Occasional Dinners and Similar Activities (see 86 Ill. Adm. Code 130.2005(a)(4)).
Thus, if an organization holding an E number makes sales to both members and nonmembers,
then it would not qualify for that part of the exemption concerning sales to members. Further, if any of
the materials the E-number holder sells are available through business establishments, then its sales
would generally be in competition with business establishments and, thus, it would not qualify for that
part of the exemption concerning noncompetitive sales and, as such, its sales would be taxable
despite the fact that the items being sold bear the logo of the organization selling the items. For
example, clothing items, such as hats, are generally considered to be items that are sold by other
business establishments and the dominant motive for purchasing those items is for the acquisition of
the property rather than merely as a token for the making of a donation. See 86 Ill. Adm. Code
130.2005(a)(3)(E).
Lastly, turning to the third part of the exemption, Occasional Dinners and Similar Activities, the
Department’s regulation provides, in part, that E-number holders may “occasionally” conduct certain
activities they may not be subject to tax whether or not such activities are open to the public. Note,
however, the regulation defines “occasional” to mean not more than twice in any calendar year. 86 Ill.
Adm. Code 130.2005(a)(4).

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